1986 (5) TMI 71 - AT - Income Tax

Summary

Issues:
1. Whether the difference between the purchase consideration and sale price of National Defence Gold Bonds, 1980 is taxable as business income or exempt as capital gains.

Analysis:
The appeal involved a dispute regarding the taxability of the profit earned by the assessee from the sale of National Defence Gold Bonds, 1980. The primary issue was whether the profit of Rs. 31,500 arising from the transaction should be considered as income from an adventure in the nature of trade, thus taxable as business income, or as capital gains exempt from tax. The assessee contended that the investment in gold bonds was made as a capital asset and not with a business motive, while the revenue argued that the transaction constituted an adventure in the nature of trade.

The relevant facts established that the assessee, a private limited company, purchased the gold bonds through a broker and later sold them for a profit. The Income Tax Officer (ITO) held that the profit was taxable as business income due to the business motive behind the purchase. The Commissioner (Appeals) upheld this view, considering the transaction as an adventure in the nature of trade. The assessee challenged this decision, arguing that the profit should be treated as capital gains exempt from tax under section 2(14) of the Income-tax Act, 1961.

In analyzing the case, the tribunal considered various legal precedents and principles related to determining whether a transaction constitutes an adventure in the nature of trade. The tribunal emphasized that the profit motive alone does not categorize a transaction as business income. It was noted that the purchase of the gold bonds was an isolated transaction, not part of the assessee's regular business activities. The tribunal found that the purchase was made as an investment, and the profit earned was akin to capital gains.

The tribunal concluded that the profit of Rs. 31,500 from the sale of the gold bonds should be treated as capital gains and exempt from tax. The transaction did not qualify as an adventure in the nature of trade, as evidenced by the nature of the purchase, absence of regular trading activities in gold bonds, and the investment motive behind the transaction. Therefore, the tribunal allowed the appeal and directed the deletion of the amount from the total income of the assessee.

In summary, the tribunal's decision clarified that the profit arising from the sale of the gold bonds was not taxable as business income but should be considered as capital gains exempt from tax, based on the specific facts and circumstances of the case and the legal provisions governing capital asset transfers.