Tax implication

Query: What will be the tax implication of any bonds or debenture purchased with fixed maturity of double the amount after a fixed tenure.

            1) Whether I would have to accrued the interest every year and pay tax on it as per my slab.

               2) Whether I would be entitle for Indexation in the maturity year and pay capital gain on it.

Reply: Any claim that the income be assessed as Capital Gains, may not be allowed, as there is no 'transfer' of any  continuing asset, but only total surrender of an asset getting extinguished,  for encashment.

The interest Income can be offered for assessment annually on accrual basis, as per the relevant table of interest.However the ITAT Cochin Bench - see the attached Order- has held that the income can be considered to accrue only when the tax payer gets the right to receive it.