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TMI Blog1986 (7) TMI 199X X X X Extracts X X X X X X X X Extracts X X X X ..... trust deed gives wide powers to the trustees to sell, convey or otherwise realise any of the trust properties and invest the same to his accounts and accumulate; to commence and carry on any business or to take over any business and to enter into partnership with any party or parties. The trust shall cease as and when the beneficiary attains the age of 21 years and the trust shall distribute the corpus of the trust fund together with all accretions and accumulations to the beneficiary and on doing so shall be discharged from all further obligations under the trust. The trustees filed return for the assessment year 1981-82 for which the accounting year ended on 31-3-1981 admitting income of Rs. 5,210, The assessee also admitted income of Rs. 35,000 being the surplus from sale of gold bond, but claimed exemption under section 2(14) (iv) of the Income-tax Act, 1961 ('the Act'), treating the bond as not a capital asset. The ITO rejected the claim of the assessee and treated the surplus as trading results. Thus, he assessed the interest income of Rs. 6,598 and surplus on sale of gold bond as business. 2. On appeal the assessee reiterated the same contentions that the surplus was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted already. The whole issue is to be approached with reference to the circumstances such as terms of the trust deed, the powers of the trustees and the various other activities carried on by the trustees to build up the income and the funds of the trust. Starting with a nominal amount of Rs. 500 on 8-3-1978 the assessee was able to account for capital of Rs. 65,155.15 as per trial balance as on 31-3-1980, i.e., in a period of two years and 23 days. The capital balance shot up to Rs. 1,05,493.84 as on 31-3-1981, which includes the sale proceeds of earlier bond and purchase of second bond for Rs. 60,050 each. The balance stood at Rs. 1,09,060.45 as per trial balance as on 31-3-1982, while it shot up to Rs. 1,38,217.48 as on 31-3-1983. By any stretch of imagination the capital accretion could not have jumped by leaps and bounds by investment alone without carrying out activities which are akin to adventure in the nature of trade. The following are the activities in the National Defence Gold Bonds : ----------------------------------------------------------------------------------------- Bond No. Weight Date of Price Rate From whom/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g very close. In this view of the matter, the AAC was justified in holding that the income arose out of adventure in the nature of trade. When once it is held that the income arose out of adventure in the nature of trade it is immaterial whether the assessee chose to hold the bonds as investment and that too for a short period which is not normally the case. Taking into account the rapidity in which the trisection took place the contention of the assessee that it held the bonds as investment is also not acceptable. The plea given by the learned the quantum of gold to be retained by the trustees is only a plea without any support or evidence. Although the assessee was specifically required to produce any documentary evidence in this regard it was not produced. Therefore, this contention is not tenable. Further the assessee is not the subscriber of the original National Defence gold Bonds as per the scheme which prevailed between 27-10-1965 to 31-3-1966. The notification dated 19-10-1965 specifically exempts the initial subscriber of the bond from gift-tax up to 5 kg. of gold and from estate duty on the first occasion when the bonds pass up to 50 kg. of gold. From this a clue can be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant in its activities, which is adventure in the nature of trade. Accordingly, I am of the opinion that the amount does not come under the purview of 'Capital assets' under section 2(14) (iv). In this view of the matter, I consider that the ITO has brought this amount to tax in accordance with law. The appeal is dismissed." 3. Aggrieved, the assessee is in appeal before us. According to the learned counsel for the assessee, it is not correct to consider that the assessee is a dealer in National Defence Gold Bonds. According to the learned counsel, the said bond was held only for the purpose of investment and not as stock-in-trade. He further submitted that the authorities below are not correct in coming to the conclusion that the income had accrued in the course of his activities as an adventure in the nature of trade. It was also pointed out that profit made from the sale of gold bonds will not be subjected to income-tax. On the other hand, the learned departmental representative supported the order passed by the AAC. We have heard the rival submissions made by the parties. 4. The AAC has clearly held that no capital gains can be computed for taxation on the sale of Natio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bility of holding one kilogram of National Defence Gold Bonds as investment, the first bond of 500 grams was sold through Chandravadan Desai, stock and share broker, Calcutta-1 on 30-4-1980 for Rs. 1,201 per gram. The gold bond No. is 002045. Thus, exemption under section 2(14) (iv) is claimed. 7. The trust is created and is in existence till the minor attains the age of 21 years. The trustees shall have the power to investments in shares, stock debentures and other securities and other investments. The trustees shall also have power to sell, covey or otherwise realise any of the trust properties and invest the same to his accounts and accumulate. The trustee shall also have power to commence and carry on any business or takeover any businesses and the same shall form part of the trust property. They can also have power to enter into partnership with any party or parties. 8. The question is whether the trustees have started any business as stated in the trust deed. It is settled law that it is for the revenue to establish that the profit earned in a transactions within the taxing provision and is, on that account, liable to be taxed as income-G. Venkataswami Naidu Co. v. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saction will not be a trading adventure unless it becomes clear indicia of trade -Narain Swadeshi Wvg. Mills v. CEPT [1954] 26 ITR 765 (SC) and G. Venkataswami's case. 10. The onus placed on the department was not discharged in this case to prove that the adventure was for a profit-making motive Lalit Ram Mangilal v. CIT [1950] 18 ITR 286 (All.). Saroj Kumar undertaken Mazumdar's case and Michael A. Kallivayalil's case even in the return what is admitted is only interest income and not sale proceeds of gold bonds. Therefore, the evidence on record clearly shows that the purchase of gold bond in question was only as an investment and the subsequent sale was only realisation of capital. 11. Notification No. F. 4(29) W and M dated 19-10-1965 as amended states : "The Bonds will be exempt from wealth-tax and any capital gains from their sale or transfer will not be subject to income-tax, capital loss, if any, will not be eligible for being set off." "Gifts, in a year, of Bonds by the initial subscriber will be exempt from gift-tax to the extent of the value of bonds for an aggregate weight of five kilograms of gold. The bonds will also be exempt from estate duty on the first occas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es only to the original subscriber to the National Defence Gold Bond, 1980 or to any subsequent holder of the same ?" 2. The learned Accountant Member in his order has given the facts relating to the constitution of the trust and the background thereof. The deed of trust is dated 8-3-1978 and the author of the trust was one Smt. Bharatiben N. Shah. The beneficiary was only one, viz., Kartikeya Nagri, who was born on 28-11-1977 and who was the nephew of the author of the trust. There were four trustees, viz., Hareshkumar N. Shah, Smt. Kalpana Nagri, Sumanlal Shah and Jitendra Shah. The trust was started with corpus of Rs. 500. The trust had purchased a gold bond of 500 gms. bearing No. 002045 on 2-4-1979 for Rs. 25,050. According to the contention of the assessee, this bond was sold on 30-4-1980 for a sum of Rs. 60,050 and there was a surplus of Rs. 35,000. The surplus, the assessee claimed, was a capital receipt and was not liable to tax. The ITO considered that the transaction was an adventure in the nature of trade. He did not give any other reasons for holding that it was a trading receipt but only stated that the exemption under section 2(14) (iv) could not be granted because ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground of the case and referring to the notifications relating to gold bonds and various judicial pronouncements, came to the conclusion that there was no element of adventure in the nature of trade or business and the surplus arising from the disposal of gold bond is capital and looking to the terms of Notification No. F. 4(29)-WM/65, dated 19-10-1965, he considered that there was nothing to restrict the exemption of capital receipts to the initial subscriber of the gold bond in the case of income-tax. 6. I have heard the learned counsel for the assessee and the learned departmental representative. The trust no doubt started with a corpus of only Rs. 500 on 8-3-1978. Subsequently, on 9-3-1978, a gift on Rs. 18,000 was received from K. Shobana, on 10-3-1978 a gift of Rs. 17,000 was received from T. R. Sankaranyanan and on 11-3-1978 a gift of Rs. 15,000 was received from K. Pankajam. The facts were brought to the notice of the ITO in filing the return for the assessment year 1978-79. Thus, there were gifts of Rs. 50,000 which amount stood invested as on 31-3-1978 with the firm of Natwarlal Shah. The investment in Natwarlal Shah changed slightly in the next year and there was a fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also nothing to show that at the time of purchase of gold bond the assessee had any evidence of selling the same within a short period. For all these reasons I would hold that the surplus of Rs. 35,000 did not arise from any adventure in the nature of trade. 10. I, therefore, answer that the transaction from the purchase and sale of gold bond under consideration was not liable to be taxed as an adventure in the nature of trade. The question that still arises is whether it is liable to be taxed or not. For this purpose it is in my view unnecessary to go into any notification. If the receipt is a capital receipt, it is taxable only if it is a surplus form 'capital asset' within the meaning of section 2(14). Section 2(14) states that capital asset manes property of any king held be an assessee whether or not connected with his business or profession. But there are certain specific exceptions. As long as the item, the sale of which has resulted in a surplus, comes within the exception, it is not a capital asset. Otherwise a property would be a capital asset and the provisions of section 45 of the Act would apply to the surplus arising form the transfer to fit capital asset. Section ..... X X X X Extracts X X X X X X X X Extracts X X X X
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