The Mumbai bench of the Income Tax Appellate Tribunal ( ITAT ) observed that Surplus on Redemption of Treasury bill is to be taxed under Capital Gains.
The Assessing Officer ( AO ) had observed that the assessee obtained a surplus amounting to Rs. 19, 26,772 on the redemption of Treasury bills during the relevant fiscal period. In Paragraph 1.8 of the assessment order, the AO explained that the treasury bills were sold by the Reserve Bank of India on behalf of the Central Government. The variance between the amount payable on maturity and the discounted value of the treasury bills at the time of issue was considered as interest on securities. The AO had cited the decision of the Bombay High Court in the case of British Bank of Middle East v/s CIT to support this stance.
The assessee filed an appeal before the CIT (A). The CIT (A) has dismissed the appeal of the assessee.
The bench noted that the Bombay High Court, in the case of British Bank of Middle East v/s CIT had established that the difference between the amount payable on maturity and the discounted value of treasury bills at the time of issue constituted interest on securities.
The two member bench of the tribunal comprising Abi T Varkey ( Judicial member ) and Amarjit Singh ( Account member ) had ruled in favor of the assessee. The bench following the decision of the Supreme Court in CIT v/s Grace Collis had determined that the surplus on the redemption of treasury bills should be taxed under the head Capital Gains. Therefore, in alignment with the coordinated bench’s decision, the Assessing Officer was directed to assess the same as capital gains.
Consequently, appeal was allowed.
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