LTCG on Market Linked Debentures Taxable at 20% under Sec 112: ITAT Bangalore 

Doraiswami Rajagopalan Vs DCIT (ITAT Bangalore)

The issue before the ITAT Bangalore was whether the long-term capital gain (LTCG) arising from the redemption of Market Linked Debentures (MLDs) should be taxed at the concessional rate of 10% under Section 112A of the Income Tax Act, 1961, or at 20% under Section 112, as applied by the Assessing Officer (AO).

Brief Facts:

• The assessee, an individual, earned an LTCG of ₹1,95,850 from the redemption of MLDs during the relevant financial year.
• The assessee paid tax at 10% on the LTCG, believing it to be covered under Section 112A.
• However, the Centralized Processing Center (CPC), in its intimation under Section 143(1), taxed the LTCG at 20% under Section 112, creating an additional tax demand.
• The assessee filed a rectification application under Section 154, which the CPC rejected.
• Aggrieved, the assessee filed an appeal before CIT(A)/NFAC, arguing that LTCG on listed debentures should be taxed at 10% under Section 112A.
• The CIT(A) dismissed the appeal, holding that Section 112A applies only to certain specified securities like equity shares and equity-oriented mutual funds, not debentures.

Assessee’s Arguments:

1. Debentures are Securities – The assessee argued that debentures qualify as “securities” under the Securities Contracts (Regulation) Act, 1956 and should be eligible for the concessional 10% tax rate.