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Issues Involved:
1. Whether the transaction of purchase and sale of gold bond No. 602045 is an adventure in the nature of trade. 2. Whether the surplus arising from the sale of the gold bond is liable to be taxed. 3. Whether the exemption under section 2(14)(iv) of the Income-tax Act applies only to the original subscriber of the National Defence Gold Bond or to any subsequent holder. Detailed Analysis: Issue 1: Nature of the Transaction The primary issue revolves around whether the transaction of purchasing and selling the gold bond No. 602045 qualifies as an adventure in the nature of trade. - Assessee's Argument: The assessee contended that the gold bonds were held for investment purposes and not as stock-in-trade. They argued that a single or solitary transaction does not constitute a trading adventure unless it bears a clear indicia of trade, and the burden of proof lies on the department to establish a profit-making motive. - Department's Argument: The department argued that the appreciation in the value of the gold bonds is akin to interest income earned by the assessee through other activities, suggesting a trading motive. - Tribunal's Observation: The Tribunal noted that the trust deed gave wide powers to the trustees to engage in business activities. The rapid increase in the trust's capital from Rs. 500 to Rs. 1,38,217.48 within a few years indicated activities akin to an adventure in the nature of trade. The purchase and sale of gold bonds were carried out with the intention of earning exorbitant profits, especially given the proximity to the bonds' maturity date. Issue 2: Taxability of Surplus The second issue concerns whether the surplus of Rs. 35,000 arising from the sale of the gold bond is liable to be taxed. - Assessee's Argument: The assessee claimed exemption under section 2(14)(iv) of the Income-tax Act, asserting that the National Defence Gold Bond is not a capital asset, and hence, the surplus should not be taxed. - Department's Argument: The department maintained that the surplus should be treated as business income, as the transaction was an adventure in the nature of trade. - Tribunal's Observation: The Tribunal upheld the AAC's decision, stating that the surplus arose out of an adventure in the nature of trade and was not in the nature of capital gains, which is exempt under section 2(14)(iv). The rapidity of the transactions and the intention to earn profits negated the claim of holding the bonds as an investment. Issue 3: Applicability of Exemption under Section 2(14)(iv) The third issue is whether the exemption under section 2(14)(iv) applies only to the original subscriber of the National Defence Gold Bond or to any subsequent holder. - Assessee's Argument: The assessee argued that the exemption should apply to any holder of the bond, not just the original subscriber. - Department's Argument: The department contended that the exemption applies only to the original subscriber. - Tribunal's Observation: The Tribunal noted that the National Defence Gold Bond is not considered a capital asset under section 2(14)(iv), irrespective of whether it is held by the original subscriber or a subsequent holder. Therefore, the surplus arising from the sale of the bond is not liable to be taxed as capital gains. Conclusion: - Transaction Nature: The Tribunal concluded that the transaction of purchasing and selling the gold bond was an adventure in the nature of trade. - Taxability of Surplus: The surplus of Rs. 35,000 was deemed liable to be taxed as business income. - Exemption Applicability: The exemption under section 2(14)(iv) applies to the gold bond irrespective of whether it is held by the original subscriber or a subsequent holder. Final Decision: - The appeal by the assessee was dismissed, and the order of the AAC was upheld, confirming the taxability of the surplus as business income. - The Tribunal referred the case to the President under section 255(4) of the Income-tax Act due to a difference of opinion between the members. Third Member Decision: - Nature of Transaction: The third member held that the transaction was not an adventure in the nature of trade. - Taxability of Surplus: The surplus was not liable to be taxed as it was a capital receipt. - Exemption Applicability: The exemption under section 2(14)(iv) applies to any holder of the bond, not just the original subscriber.
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