2014 (1) TMI 554 - HC - Income Tax

Whether sale of gold bonds and repurchase of new bonds is adventure in the nature of trade - Held that - At the time of sale of gold in 1980 the Gold Control Act, 1968 was on the statute book which was repealed in the year 1990 by the Gold (Control) Repeal Act, 1990 - The Gold Control Act in order to carry on business of gold and gold ornament required a licence to be obtained under Section 27 of the Act - A restriction was imposed under Section 8 of the Act on the acquisition, possession and disposal of gold without a licence - The gold bonds were purchased and were given as a gift without requiring any conditions of having a licence - The taking of delivering of gold and its sale was under the terms and conditions of the purchase of National Defense Gold Bonds - There was no material to show, nor there was anything on record to demonstrate that the motive of the assessee was to deal in sale and purchase of the gold. The sale of gold bonds approaching the due date of redemption, the repurchase and thereafter sale of the gold was not in the nature of the regular business of the assessee. All the transactions were made taking advantage of the National Defense Gold Bonds 1980, as scheme as per notification dated 19.10.1965, amended on 19.11.1965, and the communiques issued by the Government of India on 22.9.1980 - Decided in favour of assessee.

Issues Involved:
1. Whether the transactions were an adventure in the nature of trade.
2. Whether the profits in question are revenue profits.

Issue-wise Detailed Analysis:

1. Whether the transactions were an adventure in the nature of trade:
The primary issue was whether the transactions involving the sale of National Defence Gold Bonds (NDGB) by the assessee constituted an adventure in the nature of trade. The Assessing Officer (AO) argued that the gold bonds represented stock-in-trade of the business of the assessee and subjected them to tax on the income derived from their sale. The AO's view was supported by the fact that the assessee did not hold the gold bonds as a capital asset but rather engaged in systematic purchases and sales to make a profit. The AO highlighted that the transactions were well-planned, involving gifts of gold bonds within the family, their sale when market prices were high, and repurchase before surrender dates, indicating an intention to carry on an activity for profit.

The Tribunal, however, found that there was no colourable device or dubious names involved, as all transactions were recorded in the books of account. The Tribunal held that the ultimate sale of gold and the initial receipt of gifts could not be considered transactions of adventure in the nature of trade. The transactions were driven by the Government's notification, which forced the assessee to sell the gold as it could not retain it beyond six months after maturity of the bonds. The Tribunal emphasized that there was no evidence of suppression of transactions or use of dubious methods, and the trusts involved were genuine.

2. Whether the profits in question are revenue profits:
The AO treated the profits from the sale of NDGB as revenue profits, arguing that the systematic manner of transactions indicated a business activity aimed at making profits. The AO's assessment was based on the significant volume of transactions and the use of borrowed funds for purchasing the gold bonds.

The Tribunal, however, concluded that the profits could not be considered revenue profits. The Tribunal noted that the sale of gold bonds was necessitated by the Government's notification, which mandated the sale or conversion of gold within six months of receipt. The Tribunal found that the transactions were isolated and did not form part of a series of business activities. The Tribunal also pointed out that the trusts and transactions were genuine, and there was no evidence of any intention to trade in gold or gold bonds.

Conclusion:
The High Court, after considering the provisions of the Income Tax Act and the judgments cited by both parties, found no substance in the revenue's contention that the transactions were an adventure in the nature of trade. The Court held that the gifts and subsequent sale of gold bonds, driven by the Government's notification and the approaching redemption dates, were not in the nature of regular business activities. The transactions and profits were not treated as an adventure in the nature of trade. Consequently, the question of law was returned in favour of the assessee, and the profits were not considered revenue profits. All Income Tax References were disposed of accordingly, and the department was directed to proceed in line with this judgment.

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