1993 (8) TMI 98 - AT - Income Tax

Summary

Issues Involved:
1. Whether the purchase and sale of Gold Bonds constituted an adventure in the nature of trade.
2. Whether the income from the Gold Bonds should be taxed in the hands of the trust or the individual beneficiaries.
3. Whether the profit from the sale of redeemed gold should be treated as capital gains.
4. Legality of the levy of interest under sections 139(8) and 215.

Issue-wise Detailed Analysis:

1. Adventure in the Nature of Trade:
The main issue was to determine if the assessees' transactions in Gold Bonds were an adventure in the nature of trade. The assessees argued that the purchases were investments in capital assets, thus the profits should be considered capital gains, not business income. They cited the Supreme Court decision in Janki Ram Bahadur Ram vs. CIT, arguing that proximity in time between purchase and sale alone does not constitute an adventure in the nature of trade. However, the Tribunal noted that the assessees borrowed substantial funds, engaged brokers, and quickly sold the bonds, indicating a speculative intent. The Tribunal concluded that the transactions were indeed speculative and constituted an adventure in the nature of trade, thereby affirming the lower authorities' decision to tax the profits as business profits.

2. Taxation in Hands of Trust vs. Beneficiaries:
The assessees contended that since the Gold Bonds were purchased using the trust's funds, the income should be taxed in the hands of the trust, not the beneficiaries. The Tribunal rejected this argument, stating that the beneficiaries borrowed funds from the trust and thus any profits from these borrowed funds should be assessed in their hands. The Tribunal further noted that the income of the trust was allocated among the beneficiaries, and the trust itself was not taxed. Hence, the assessees' contention on this ground failed.

3. Treatment of Profit from Redeemed Gold:
The assessees alternatively argued that if the profits from Gold Bonds were considered business income, the profit from the sale of redeemed gold should be treated as capital gains. The Tribunal rejected this argument, stating that since the Gold Bonds were not considered capital assets, the gold received upon redemption could not be considered capital assets either. Therefore, the profits from the sale of redeemed gold were also taxable as business profits.

4. Levy of Interest under Sections 139(8) and 215:
The assessees contended that the levy of interest under sections 139(8) and 215 was illegal. However, they did not provide any supporting reasons, nor did their representative press this point during the hearing. Consequently, the Tribunal rejected this ground as well.

Conclusion:
The Tribunal dismissed all four appeals filed by the assessees, affirming the decisions of the lower authorities to tax the profits from the Gold Bonds and redeemed gold as business profits and rejecting the assessees' contentions regarding the taxation of trust income and the levy of interest.