Case Law Details
RELEVANT PARAGRAPH
4. Question Nos. 2 to 6 pertain to one and the same issue, that is, whether IVP is a capital asset or not. It is seat from the orders of the Tribunal that investment in IVP is assessed in the case of the assessee as unexplained investment only to the extent of fresh investment made in the respective year and reinvestment after encashment of earlier deposits was in tact allowed. The assessee’s claim that IVP is a capital asset is only for the purpose of evading payment of interest accrued on yearly basis in accordance with the scheme of IVP. The specific contention raised by the assessee is that IVP is a capital asset and therefore interest accrued is profit assessable as capital gains. The Tribunal rejected the claim by holding that IVP is nothing but a deposit with the Post Office which entitles die assessee to a specific rate of interest on compoundable basis and assessee can encash the deposit only for the maturity value which is pre-determined. The assessee has relied on several Courts’ decisions for the proposition that IVP is a capital asset. IVP is admittedly a deposit scheme framed by the Government of India for making deposits in the Post Offices. Purchase of IVP amounts to depositing a specific amount in Post Office for a specific period at specified rate of interest. On maturity the holder can. encash the same from the very same post office. His rate of interest for . IVPs’ purchased before 31.3.1987 was 14.97 per cent per annum compounded on the initial sale value. For certificates purchased after 1.41987 the rate of interest was reduced to 13.43% per annum. Government while framing IVP Rules of 1986 lias provided for treatment of tax liability for the interest earnings. Rule 8(3) of the IVP Rules 1986 is as follows:
8(3). In the case of certificate purchased on or before 31 st March, 1987, interest at the rate of 14.97 per cent per annum compounded on the initial safe value of the certificate shall be deemed i0 have accrued at the end to each year, calculated from the date of initial purchase of the certificate from the Post Office up to the end of the fifth year for the purpose of tax payable by a holder in die relevant assessment year under any law for the time being in force.
Under sub-rule (4) the above scheme is retailed for deposits made after 1.4.1987 but with reduced rate of interest at 13.43 per cent per annum. Even though assessee contended that IVP Rules cannot be read into die scheme of the Income Tax Act or Rules, we are unable to accept this contention because Rule referred to in the IVP pertaining to tax can only be related to income tax payable under the Income Tax Act, 1961. Standing counsel appearing for the department referred to the decision of the Supreme Court in CTT V. BAGYALAKSHMI & CO., AIR. 1965 SC. 1708 and contended that other statutory law not inconsistent with the Income-tax Act should be applied for the purpose of income tax. We are in agreement with this contention more so because post office deposits under IVP Rules specifically refer to tax on interest. So long as the Rule is not in derogation of the scheme of IT Act it is applicable for the purpose of the IT. Act Section 2(14) defines “capital asset” as property of any kind. Clauses (iv) (v) and (vi) specifically excludes certain bonds from the definition of “capital asset’. Relying on these definition clauses, the assessee contended that all other hands are capital assets and therefore IVPs are also in the nature of capital asset. The assessee has relied on the decision in M. P. FINANCIAL CORPORATION’ S case, 132 ITR 884 and contended that bonds are capital assets. However, we do not thing IVPs can be treated as bonds because it has no sale value or market value as such. It is nothing but a deposit made in the Post Office which entitles the depositor to receive pre-fixed specific rate of interest and on maturity only the principal amount with accrued interest will be paid. Even though it is transferable it has no market value as such and has only maturity value which is nothing but invested amount with accrued interest. Further, the Tribunal rightly pointed out that the scheme of long term capital gains providing for granting benefits of indexed cost of acquisition under Explanation (iii) to section48 of the Act cannot apply to IVP. We are of the view that repayment of the deposited amount with interest on maturity by the Post Office cannot be treated as consideration for transfer of IVP by the holder. Therefore, the Tribunal rightly rejected the assessee’s claim that IVP is a capital asset. We therefore dismiss the assessee’s appeals on this issue.
NF
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