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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 ..... ives 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 liable to be t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough the same broker. Para 7 of the trust deed has given wide powers for the trustees to commence and carry on any business or take over any business or enter into partnership with any party or parties. Thus, the intention of the trust has been amply proved by the activities in the purchase and sale of gold bond which amounts to adventure in the nature of trade. It is not a case of solitary transaction because the assessee has purchased two bonds and sold one of them with the obvious intention and purpose of earning exorbitant profit on transfer of the bonds as the maturity date was drawing 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l income Rs. 41,598 ---------- 41,600" 2. On appeal, the AAC held as under : "In accordance with section 2(14) (iv), National defence gold Bonds should not be considered as capital assets for the purpose of computation of capital gained under the Income-tax Act. That is to say, no capital gains can be computed for taxation on the side of National Defence Gold Bonds. In the present case, the ITO treated the difference between the purchase and sale price of the gold bonds as a trading receipts. In other words, the amount has been treated by him as taxable under the head 'Profits and gained of business or profession'. While the appellant cannot be a dealer in gold bonds, it is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his payment is merely a compensation for making the charges, the payment of this premium is not likely to result in any income or gain in the hands of the subscriber. In other cases also, where the ornaments might not have been held for the personal use of the assessee, the investment would not result in any capital gain as the subscriber is merely entitled to receive gold some years hence in lieu of the ornaments tendered now. 3. In view of the circumstance stated above, it has been decided that no attempt should be made to start proceedings for compassion of capital gains for loss in case where gold ornaments are tendered for subscription, to the gold bonds." According to the assessee, the purchase of gold bond in question was only an investment and the subsequent sale was only realisation of capital 500 gms. of National Defence Gold Bonds bearing No. 602045 was purchased by the trust on 2-4-1979 for Rs. 25,050 form Shri S. Shah, 129, Radha Bazar Street, Calcutta. One more gold bond of 500 gms. was purchase by the trust on 28-4-1980 through Chandravadan Desai, stock and share brokers, Calcutta at the rate of Rs. 1,201 per gram. The sold bond No. is 10508. 6. As there was a dif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and circumstances pros and cons; what is important to consider is their distinctive character. In each case, it is the total effect of all relevant factors and circumstances that determines the character of the transaction-CEPT v. Shri Lakshmi Silk Mills Ltd. [1951] 20 ITR 451 (SC), V.S. Govindarajulu Chettiar v. CEPT [1958] 34 ITR 594 (Mad.), P.M. Mohammed Meerakhan v. CIT [1969] 73 ITR 735 (SC), CIT v. Asian Dry Dock Co. [1977] 108 ITR 822 (Bom.), Deep Chandra & Co.'s case and CIT v. Jawahar Development Association [1981] 127 ITR 431 (MP.). Amongst the relevant facts to be seen in this behalf are : firstly, as to whether the transaction in dispute was or was not in the line of business of the assessee and, secondly, whether it was an isolated or a single instance of the business or there was a series of similar transactions-Rani Ratnesh Kumari's case, Janki Ram Bahadur Ram's case, CIT v. P. K. N. Co. Ltd. [1966] 60 ITR 65 (SC) and Estate Investment Co. Ltd. v. CIT [1980] 121 ITR 580 (Bom.). 9. In this case, the department has not brought on record any evidence to show that the assessee has started the business of purchase and sale of gold bond and the profit arose thereon was ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the assessee is allowed on this point. REFERENCE UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961 As there is a difference of opinion between the members were refer the following two questions to the President under section 255(4) of the Act : "1. Whether the transaction of purchase and sale of gold bond No. 602045 is or is not an adventure in the nature of trade and consequently whether the surplus arising therefrom is liable to be taxed or not ? 2. Whether the exemption under section 2(14) (iv) applies only to the original subscriber to the National Defence Gold Bond, 1980 or to any subsequent holder of the same ?" THIRD MEMBER ORDER Per Shri George Cheriyan, Accountant Member - In this case there was a difference of opinion between the learned accountant Member and the learned Judicial Member before whom the appeal had come up for hearing and the questions on which there was a difference, which have been formulated and referred to me, are as under : "1. Whether, the transaction of purchase and sale of gold bond No. 602045 is or is not an adventure in the nature of trade and consequently whether the surplus arising therefor is liable to be taxed or not ? 2. Whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the gold bond referred to and stressed on the fact that there was sudden increase in the rate of value of the bond which was purchased on.2-4-1979 and that in all probability the transaction for purchase of second bond and the sale of the first bond would have been taken simultaneously not only to meet the funds for acquisition of second bond but to release the exorbitant profit by disposing of earlier bond inasmuch as both the transactions were put through the same broker. The plea of the assessee was that there was a dispute amongst the trustees as to the quantum of gold to be retained but, according to the earned Accountant Member, it was a plea without any support or evidence. Since the assessee was not the original subscriber to the gold bond, the learned Accountant Member, it was as plea without any support or evidence. Since the assessee was not the original subscriber to the gold bond, the learned Accountant Member held that only the original subscriber of the bond would be exempt from capital gains arising on transfer of bonds and not a dealer in share or an adventurer. Accordingly, the learned Accountant Member dismissed the appeal of the assessee. 5. The learned Judicia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tered into with Chandravadan Desai. The gold bond bearing No. 10508 was to be purchased for Rs. 60,500. On this date no doubt the trust did not have funds. But immediately thereafter, on 30-4-1980 there was contract of sale, at the same price of Rs. 60,050 for the earlier gold bond No. 002045 with the same party. The trust did not have funds but the payment for the purchase was made form the firm of Nitinkumar Nimchand by issue of cheque on 26-5-1980, to Chandravadan Desai for Rs. 60,050. Hareshkumar N. Shah, a trustee, is said to be partner of Nitinkumar Nimkchand. Nitinkumar Nimchand in its turn got back a cheque for Rs. 60,050 form Chandravadan Desai on 29-5-1980 for the sale of the gold bond. The opening balance with Nitinkumar Nimchand, which the assessee had, was Rs. 28,930 and the carried over balance was Rs. 4,681. The assessee had also purchased through Nitinkumar Nimchand some shares of Punjab Tractors Ltd. for Rs. 29,000. 9. The above analysis shows that the assessee had not been dealing in securities. Earlier the purchase and sale of gold bond was only an isolated transaction. In this transaction a surplus was made. It cannot be said that there was plunge into trade in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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