Are fixed deposits capital assets?
Q: In Nabhi’s “Income-tax Guide” its Board of Editors have opined that redemption of debt instruments like debentures, fixed deposits and bonds are transfers resulting in capital gains as they involve extinguishment, termination, cessation or cancellation of rights in a capital asset on the authority of CIT v East India Charitable Trust (1994) 206 ITR 152 (Cal). What is your reaction? A: The decision referred by the reader relates to a charitable trust, which is allowed exemption under the law on sale of a capital asset, if proceeds are reinvested in any other capital asset. It is in this context the Board itself in Circular No. 52 dated December 30, 1970 has accepted fixed deposit for duration of more than six months as a capital asset. Similar view has been taken in CIT v Hindusthan Welfare Trust (1994) 206 ITR 138 (Cal). Fixed deposits (FDs), debentures and bonds are ordinarily capital assets in the hands of an investor. Deep discount bonds which are of long duration can hardly ever
