The Income-tax Appellate Tribunal recently ruled that the difference between the proceeds received upon redemption of unlisted non-convertible debentures (NCDs) and their purchase cost should be classified as ‘interest income‘ and subjected to taxation under the category of ‘income from other sources‘ for the investor. Consequently, the ITAT (Mumbai bench) also disallowed tax benefits available for investing the proceeds from long-term capital gains in specified assets.
In a corporate insolvency resolution process, two private companies issued NCDs to banks as part of a rehabilitation scheme approved by the Board of Industrial and Financial Reconstruction. Subsequently, the banks sought recovery of the NCDs from the directors of the companies.
K C Thackersey, one of the directors, acquired the NCDs from a nationalized bank. In the financial year 2009-10, he reported long-term capital gains upon redeeming these NCDs. The Income Tax Acts offers tax benefits if the proceeds from earning long-term capital gains are reinvested in a residential property or capital gain bonds.
Since Thackersey had made such investments, he claimed deductions under sections 54F and 54EC, respectively.
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