1990 (10) TMI 115 - AT - Income Tax

Summary

Issues Involved:
1. Taxability of profit from the sale of gold bonds.
2. Whether the transaction constituted an adventure in the nature of trade.
3. Applicability of exemptions under the Income-tax Act.

Detailed Analysis:

1. Taxability of Profit from the Sale of Gold Bonds:
The primary issue in this case was whether the profit of Rs. 24,272 from the sale of gold bonds should be taxed as income. The assessee argued that the profit was a capital gain exempt under the Income-tax Act, while the Income Tax Officer (ITO) treated it as revenue receipts from a business transaction.

2. Whether the Transaction Constituted an Adventure in the Nature of Trade:
The ITO and the Commissioner of Income Tax (Appeals) [CIT(A)] considered the transaction as an adventure in the nature of trade. The assessee contended that a single transaction of purchasing gold bonds could not be classified as such. The Tribunal examined several judicial precedents, including:

- CIT v. H. Holck Larsen [1986] 160 ITR 67 (SC): The Supreme Court emphasized that the first step of purchasing shares determines whether it is a trading transaction. In this case, the assessee's purchase of gold bonds was not followed by any further trading activity.

- Janki Ram Bahadur Ram v. CIT [1965] 57 ITR 21 (SC): The Supreme Court held that mere intention to earn profit does not convert a capital transaction into a trading venture. The assessee was not engaged in the business of dealing in gold, thus the purchase and sale of gold bonds could not be seen as part of a trading activity.

- Radha Debi Jalan v. CIT [1951] 20 ITR 176 (Cal.): The Calcutta High Court stated that continuous activity aimed at profit is necessary to classify a transaction as a trade. The assessee's single transaction lacked this continuous activity.

- Deep Chandra & Co. v. CIT [1977] 107 ITR 716 (All.): The Allahabad High Court held that the burden lies on the revenue to prove that a transaction is an adventure in the nature of trade. The Tribunal found no evidence of the assessee engaging in trading activities.

3. Applicability of Exemptions under the Income-tax Act:
The Tribunal noted that the National Defence Gold Bonds Notification provided several exemptions, including exemption from income-tax on capital gains. The assessee's transaction fell within these exemptions. The Tribunal also dismissed the revenue's argument that the transaction was a colorable device to avoid tax, citing that the assessee had disclosed all facts transparently.

Conclusion:
The Tribunal concluded that the single transaction of purchasing and partially selling gold bonds by the assessee did not amount to an adventure in the nature of trade. Consequently, the profit earned was exempt from income-tax as a capital gain. The Tribunal's decision was based on several judicial precedents and the specific facts of the case, emphasizing that the assessee's transaction was an investment rather than a business activity. The appeal was decided in favor of the assessee, overturning the orders of the ITO and CIT(A).