In the case of Heidelberg Cement AG[1] (Taxpayer), the issue before the Delhi Income Tax Appellate Tribunal (Tribunal) was whether non-convertible debentures (NCDs) would qualify as “bonds” within the scope of Section (S.) 115A(1)(a)(iiab) read with s.194LD of the Income-tax Act, 1961 (ITA), so as to be eligible for a concessional taxation at 5%[2] on the interest income derived thereon. Being a German company, registered as a Foreign Portfolio Investor in India, the Taxpayer held rupee-denominated NCDs issued by an Indian Company. The Taxpayer offered interest income on such NCDs at concessional rate of 5% under S. 115A(1)(a)(iiab) of the ITA. The tax authority held that the Taxpayer is not eligible for concessional tax rate of 5% as S. 194LD covers ”rupee-denominated bonds” alone and NCD would not qualify as ”bonds”. The limited issue before the Delhi Tribunal was that whether NCD issued by Indian company qualifies as “rupee-denominated bond”.
The Delhi Tribunal ruled in Taxpayer’s favor and held that NCDs qualify as “bonds”. To conclude this, it relied on the Delhi High Court (HC) ruling in the case of DIT vs. Shree Visheshwar Nath Memorial Public Ch. Trust [(2010) 194 taxman 280]. In this ruling, in the context of eligible investments for charitable institution which includes “bonds”, the Delhi HC held that: (a) Debenture is not defined under the ITA but is defined under Companies Act, 1956 and the definition of ”debenture” under Companies Act, 1956 includes ”bond”, (b) In absence of definition of the term under the ITA, meaning of the term is to be given as per the common parlance in the light of dictionary meaning. The Delhi HC, therefore, held that NCDs qualify as “bonds”.
