2002 (12) TMI 16 - HC - Wealth-tax

Whether assessee was entitled to the exemption under section 5(1)(xvia) in respect of the National Defence Gold Bonds 1980? - I hold that the Wealth-tax Officer Assessing Officer and the Tribunal were not right in this behalf and in my view the assessee in this case had by their mere act of not surrendering the gold bonds claimed the exemption. The simple plain and obvious fact is that the State granted exemption in return for the right to retain the gold and when that right was given up in favour of the bond holder it withdraws their right to exemption. In view of the same I answer that the assessee was entitled to the exemption under section 5(1)(xvia) in respect of the National Defence Gold Bonds 1980

Summary

Issues Involved:
1. Entitlement to exemption under section 5(1)(xvia) of the Wealth-tax Act, 1957, for National Defence Gold Bonds, 1980, after their maturity date.

Detailed Analysis:

Background and Facts:
The Union of India issued National Defence Gold Bonds, 1980, in 1965 to strengthen the country's defense forces. Citizens were encouraged to exchange their idle gold for these bonds, which would be returned after 15 years. The bonds offered several incentives, including exemption from wealth-tax, gift-tax, and estate duty. The bonds matured on October 27, 1980. The assessee held these bonds beyond their maturity and claimed exemption under section 5(1)(xvia) of the Wealth-tax Act for the assessment years 1981-82 to 1983-84. The Wealth-tax Officer denied the exemption, and subsequent appeals to the appellate authority and the Tribunal were also rejected.

Issue 1: Entitlement to Exemption Post-Maturity
The primary issue was whether the National Defence Gold Bonds retained their exempt status under section 5(1)(xvia) of the Wealth-tax Act after their maturity date.

Assessee's Argument:
The assessee argued that the gold bonds retained their basic characteristics until they were redeemed for gold. The exemption should continue as long as the bonds were held, regardless of the maturity date. The assessee emphasized the patriotic motive behind holding the bonds and the clear legislative intent to exempt these bonds from wealth-tax.

Revenue's Argument:
The Revenue contended that the bonds lost their essential characteristics (assignability and annual return) after the maturity date, thus nullifying the exemption. They argued that the bonds should be treated as gold post-maturity, making them subject to wealth-tax.

Court's Analysis:
The court analyzed the legislative intent and the statutory provisions. It noted that section 5(1)(xvia) continued to provide exemption for the bonds even after their maturity date. The court emphasized that the basic characteristic of the bonds as an obligation of the government to return gold remained unchanged until redemption. The court rejected the Revenue's argument that the bonds should be treated as gold post-maturity, stating that the bonds retained their identity and the legislative intent was to provide continuous exemption.

Conclusion:
The court concluded that the National Defence Gold Bonds retained their exempt status under section 5(1)(xvia) of the Wealth-tax Act even after the maturity date. The exemption continued until the bonds were redeemed for gold.

Separate Judgment by K.M. Mehta J.:
K.M. Mehta J. concurred with the judgment and provided additional reasoning. He emphasized the definition and nature of bonds, stating that the promise to repay (in gold) remained until actual redemption. He highlighted that the bonds continued to enjoy exemption as long as they were held and the exemption was not withdrawn. He also referred to various legal precedents and statutory provisions supporting the continuous exemption of the bonds.

Conclusion:
The court answered the question in the affirmative, in favor of the assessee and against the Revenue, confirming that the assessee was entitled to the exemption under section 5(1)(xvia) in respect of the National Defence Gold Bonds, 1980, for the assessment years 1981-82 to 1983-84. The reference was disposed of with no order as to costs.