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2016 (11) TMI 1710 - AT - Income TaxClaim of exemption u/s 10(38) - capital gains arising from redemption of Deep Discount Bonds - Denial of exemption as capital assets was not in the nature of an equity share in a company or a unit of an equity orient fund subject to various other stipulations therein - whether the impugned redemption income is to be treated as capital gains or interest income from securities? - HELD THAT:- There is no dispute that assessee had acquired the Deep Discount Bonds in question way back on 11.01.1994. It has come on record that the CBDT Circular dated 15.02.2002 applicable from prospective effect only has directed the field authorities to treat such bonds redemption income as interest income. The CIT(A) relied upon the Board’s press note dated 20.03.2002 that the above circular would have prospective effect only. We further notice that a co-ordinate bench decision in C. S. Goslla [2008 (7) TMI 1083 - ITAT MUMBAI] holds the very Deep Discount Bonds as capital assets. We thus find no force in Revenue’s argument that the impugned redemption income has been wrongly treated as capital gains in the lower appellate’s proceedings. Assessee’s corresponding first argument seeking to assess his redemption income as interest income on mercantile basis also has not merit since the above Deep Discount Bonds have been declared in the original return as capital assets only. The assessee claimed redemption income therefrom as capital gains u/s.10(38) of the Act in his return filed. We thus find no reason to accept his first argument adopting a different stand at this stage without any tangible basis. The Revenue’s only argument fails. Non cost indexation benefit qua the above Deep Discount Bonds whilst treating income therefrom as capital gains - We notice that the lower appellate authority has placed reliance on Section 48 third proviso stipulating that second proviso thereto regarding indexed cost of acquisition shall apply to long term capital gains arising from transfer of a long term capital asset being bond or debenture and so on. Ld. counsel fails to dispute the application of this proviso restricting the ambit and scope of the other proviso regarding indexation cost computation. This assessee’s argument also meets the same outcome. Entitlement for assessment of his capital gains arising from redemption of Deep Discount Bonds at a flat rate of 10% u/s.112 - We find no reason to concur with the same as this proviso itself stipulates that where the tax payable in respect of any income arising from the transfer of a long term capital asset in the nature of listed security other than a unit or zero coupon bond exceeds 10% of the amount of capital gains before giving effect to provisions of second proviso to Section 48, then, such excess shall be ignored for the purpose of computing the tax payable by the assessee. It has already come on record that second proviso to Section 48 of the Act is itself not applicable as per third proviso discussed hereinabove. We thus observe that this assessee’s last argument also deserves to be declined since the above proviso to Section 112 applies before giving effect to the provisions of second proviso to Section 48 which admittedly is not the case here.
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