Mumbai Tribunal rules premium received on redemption of debentures is taxable as interest and not “capital gains”

 This Tax Alert summarizes a recent ruling of the Mumbai Income Tax Appellate Tribunal (ITAT), in the case of Khushaal C. Thackersey  (Taxpayer) wherein the issue before the ITAT was whether the excess amount realized by the Taxpayer on redemption of debentures is in the nature of capital gains or in the nature of interest income under the Indian Tax Laws (ITL).

The ITAT held that amount received on redemption of debenture is realization of money advanced by creditor. The event of redemption does not give rise to capital gains. The excess realized by the Taxpayer on redemption of debenture on account of premium is in the nature of interest income and is taxable under the head ”Income from other sources”.