It is ultimately the RBI that frames the rules around SGBs and their taxation.
They would be the authority to decide what constitutes redemption and what they mean by held till maturity, and which redemptions are eligible for exemption.
The Income Tax Act contains the general provisions for taxation of capital gains, any specific provision regarding SGBs comes from the rules framed by the RBI, like excluding redemption of SGBs from the definition of transfer etc.
If someone wrongly claims exemption for capital gains on premature redemption of SGB, what do you think the AO/ITO would do, they would first try to read the rules around SGB framed by the RBI, and if they lack clarity, they would ask the RBI to clarify what constitutes redemption according to it.
The Income Tax Act can’t overrule something for which the rules are framed by the RBI, they would simply interpret these rules to modify the Income Tax Act where necessary, they can’t supersede it.
True.
Anyway, as you had mentioned, this topic is always open for interpretation, unless there are any case laws/judicial ruling around it or a detailed circular/post by RBI on this topic, i believe this will continue to remain ambiguous.
I welcome opposing opinions/disagreements, and I’m open to change my view if the evidence/facts are persuading enough.
Hopefully we will get some clarity in the future through many such conversations.