2012 (12) TMI 839 - AT - Income Tax

Gold deposit scheme, 1999 Redemption of Gold Bond - Capital Gain Long term capital gain or short term of capital gain Period of holding Cost of acquition Board s circular No. 415 - Assessee compute capital gain from cost and date of acquisition of the gold i.e. the date on which the gold has been received to assessee on the redemption of the gold bond AO computes capital gain from day and cost on which sum it was deposited with gold bond scheme Sale of gold acquired on the redemption of gold bond - Assessee deposited gold on 22.11.1999 - Redemption certificate of gold was issued on 22.11.2006 - Sold gold on 07.11.2007 Period of holding - Held that - In the Board s circular No. 415, it was decided that for the purpose of computation of capital gains, the cost of acquisition of the gold would be the market value of the bonds on the date of redemption. On the date of maturity, i.e., 22.11.2006, the certificates of gold were redeemed, therefore, 22.11.2006 should be considered as the date of acquisition of the gold for the purpose of computation of capital gains. Cost of acquition Held that - The cost of acquisition of the gold is to be taken, i.e., value of gold on the date of redemption of certificates when a new capital asset has come into existence in possession of the assessee. Earlier, the gold in possession of the assessee had lost its identity when the same was converted into bonds. The Bonds cannot be treated as gold nor the gold can be treated as bonds. Therefore, the cost and the date of acquisition of the gold for the purpose of computing the capital gains be taken as the date on which the gold has been received by assessee on redemption of the gold bonds, i.e., 22.11.2006. In favour of assessee

Issues Involved:
1. Classification of income from the sale of gold as long-term capital gain versus short-term capital gain.
2. Determination of the date of acquisition and cost of acquisition of gold for computing capital gains.
3. Applicability and interpretation of the CBDT Circular No. 415 dated 14.03.1985.
4. Consideration of relevant judicial precedents and decisions.

Detailed Analysis:

1. Classification of Income from the Sale of Gold:
The primary issue was whether the income from the sale of gold should be classified as long-term capital gain or short-term capital gain. The assessee argued that the income should be treated as short-term capital gain, as the gold was acquired upon redemption of gold bonds, making the date of acquisition the date of redemption. The authorities below, however, classified it as long-term capital gain, considering the date of acquisition to be the date when the gold was initially deposited in the Gold Deposit Scheme, 1999.

2. Determination of the Date of Acquisition and Cost of Acquisition:
The assessee contended that the date of acquisition should be the date of redemption of the gold bonds, i.e., 22.11.2006, and not the date of initial deposit, i.e., 27.11.1999. The cost of acquisition should be the market value of gold on the date of redemption. The AO and CIT(A) disagreed, treating the date of acquisition as the date of deposit and thus computing the gains as long-term.

3. Applicability and Interpretation of CBDT Circular No. 415:
The assessee relied on CBDT Circular No. 415 dated 14.03.1985, which pertains to National Defence Gold Bonds. The circular clarifies that for the purpose of capital gains, the cost of acquisition of gold should be the market value of the bonds on the date of redemption. The authorities below did not apply this circular, arguing it was specific to National Defence Gold Bonds and not applicable to the Gold Deposit Scheme, 1999.

4. Consideration of Judicial Precedents:
The assessee cited several judicial precedents supporting their stance:
- Calcutta High Court in Debmalya Sur: Held that gold bonds and gold are distinct capital assets, and the date of acquisition should be the date of redemption.
- ITAT Mumbai in Smt. L.M. Parikh: Supported the view that the cost of acquisition should be determined with reference to the maturity date of the bonds.
- ITAT Ahmedabad in Vyavasaya: Emphasized that the relevant date for the price of gold is the date of possession, i.e., the date of redemption.

Tribunal's Decision:
The tribunal considered the rival submissions and material on record. It concluded that the nature of the capital asset changed from gold to gold bonds and back to gold upon redemption. Following the CBDT Circular No. 415 and relevant judicial precedents, it held that the date of acquisition should be the date of redemption of the gold bonds, i.e., 22.11.2006. Consequently, the cost of acquisition should be the market value of gold on the date of redemption. The tribunal thus set aside the orders of the authorities below, directing them to treat the income as short-term capital gain.

Conclusion:
The tribunal allowed the appeals, ruling that the cost and date of acquisition of gold for computing capital gains should be the date of redemption of the gold bonds. This decision was applied uniformly to all related appeals, resulting in the classification of the income as short-term capital gain.

Final Judgment:
All appeals by the assessees were allowed, with the tribunal directing the authorities to compute the capital gains based on the date of redemption of the gold bonds, in line with the CBDT Circular No. 415 and relevant judicial precedents.

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