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TMI Blog2002 (12) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... in the matter of its defence. The country required machinery and raw material for the industries to support the people's efforts. The country required fertilisers and farm equipment to grow more food so as to see that dependence on foreign countries is reduced. For all these purposes, the country was not having sufficient gold and, therefore, an appeal was made to the citizens that idle gold, which the people of the country were having, should be handed over to the country so that the need for valuable gold to earn foreign exchange for the country can be satisfied. Looking to the said need of the country, in 1965, the Union of India had issued the National Defence Gold Bonds, 1980 (for short "the Gold Bond"). The said gold bonds were to be issued in exchange for gold, gold coins and gold ornaments by the Government. All the gold, which the Government was to receive from the citizens, was to be returned to them after 15 years. Thus, under the said scheme, a citizen had to give his gold, gold coins or gold ornaments to the country and in exchange therefore the citizen was to be issued the Gold Bond. The said scheme was open till January 31,1966, i.e., till that date it was open to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on account of the peculiar facts of the case. The assessee had subscribed to the gold bond. Even after the date of maturity of the gold bond, the assessee did not offer his gold bond to the Government of India for getting his gold back. In the circumstances, the question which arose was whether the gold bonds were eligible for exemption under the provisions of section 5(1)(xvia) of the Act. The assessee had claimed exemption under section 5(1)(xvia) of the Act in respect of the gold bonds held by him for the assessment years 1981-82 to 1983-84. The Wealth-tax Officer rejected the claim on the ground that the date of redemption had already been over, the gold bond retained was not eligible for the exemption. Being aggrieved by the order passed by the Wealth-tax Officer, the assessee filed an appeal before the appellate authority. The appellate authority confirmed the order passed by the Wealth-tax Officer observing that the assessee had deliberately continued to hold the gold bonds even after the date of maturity and thereby he had made an effort to get undue advantage of clause 5(1)(xvia) of the Act. The appellate authority referred to the law laid down by the Supreme Court of Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ress notes and circulars so as to attract people for purchasing the gold bond. It has been submitted by him that one of the attractions, which was given by the Government of India in the press notes issued by it, was that the gold bonds were exempted from wealth-tax. This being the position, and as the exemption was very much on the statute book, the assessee was right in presuming that he was entitled to the exemption if, even after the date of maturity, he did not get his gold bonds exchanged for gold. It has been thus submitted by him that the gold bond retained its basic characteristic as gold bond till the same had been redeemed and, therefore, the petitioner was entitled to the exemption under the Act. On the other hand, learned senior Central Government standing counsel, Shri M.R. Bhatt, appearing for the Union of India, has submitted that the gold bond had peculiar characteristics. According to him, a sum of Rs. 2 per ten gms. was to be paid to a holder of the gold bond every year. It was also open to the holder of the gold bond to assign the same to any other person. It has been submitted by him that these two important characteristics of the gold bond ceased to have eff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 1965, with effect from April 1, 1965, 7 per cent. Gold Bonds, 1980, were added in the said provision and thereafter under the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1965, with effect from December 4, 1965, National Defence Gold Bonds, 1980, were further included in the said clause. Thus, National Defence Gold Bonds, 1980, with which we are concerned, were exempted from payment of wealth-tax with effect from December 4, 1965. The said exemption in respect of National Defence Gold Bonds, 1980, was very much on the statute book for the period with which we are concerned. Thus, it cannot be disputed that National Defence Gold Bonds, 1980, were exempted in respect of wealth-tax for the assessment years 1981-82 to 1983-84. In the instant case, we are concerned with the assessment years 1981-82 to 1983-84 when National Defence Gold Bonds, 1980, were exempted from wealth-tax. Now, the question is whether the bond in question would cease to be National Defence Gold Bond after October 27, 1980, the date on which the said bond became mature for exchange. According to learned senior standing counsel, Shri M.R. Bhatt, after October 27, 1980, the bond lost its two imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1)(xvia) continued to give exemption to the gold bond, one can believe that the intention of the Legislature was to give benefit to its holder in respect of payment of wealth-tax. Had there been no such intention, there was no purpose in continuing the exemption in clause 5(1)(xvia) even after October 27, 1980. One cannot presume that the Legislature did not know the fact that the gold bonds were to mature on October 27, 1980. It is also pertinent to note that while exempting the gold bonds in respect of payment of wealth-tax under the Act, no provision was incorporated that the bonds would be subject to the exemption only till its date of maturity. Even after the date of maturity when the statute continued the provision with regard to the exemption, we believe that the intention of the Legislature was to give exemption in respect of payment of wealth-tax to the holders of the gold bond. In the course of the arguments, learned senior standing counsel, Shri Bhatt, had argued that the provisions with regard to exemption under the tax statute should be construed strictly. We are in agreement with the submission made by the learned advocate. One should however not forget the fact tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. It is worth noting that the value of the gold bond on October 27, 1980, was not to be considered for the purpose of calculation of capital gains. This would impliedly mean that the gold bond continued to remain in the same form till the date of its redemption and not till the date of its maturity. If this is the position, in our opinion, the Revenue is not justified in not considering the bond as gold bond for other purposes. There is another important fact with regard to the exemption granted under the Act to the gold bond. Had the Legislature thought of giving exemption in respect of the gold bond under the Act for a limited period, i.e., till the date of its maturity, in section 5(1)(xvia), the Legislature would have mentioned the date till which the exemption in respect of the gold bond was to be granted or the Legislature would have withdrawn the exemption by deleting the words "and National Defence Gold Bonds, 1980" from section 5(1)(xvia) with effect from October 27, 1980. There was nothing which prevented the Legislature from deleting the aforestated words after the date when the gold bond had become mature for exchange of gold. If the Legislature did not think it prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 27, 1980, it would still remain a gold bond because in that event the Government still would be liable to fulfil its promise of giving gold in exchange for the gold bond as promised to the citizens in 1965. In the course of arguments, some judgments have been referred to by the learned advocates, which do not pertain to the sub-clause with which we are concerned but they pertain to the meaning of the term "bond", etc., and, therefore, we do not think it necessary to discuss the same. For the aforesaid reasons, we are of the view that the Tribunal was in error in considering that the gold bond had not retained its original characteristics and was not eligible for exemption under the provisions of the Act for the assessment years 1981-82 to 1983-84. In our opinion, even after the date of maturity, for the assessment years under consideration, the assessee was entitled to the exemption and, therefore, we answer the question in the affirmative, i.e., in favour of the assessee and against the Revenue. The reference thus stands disposed of accordingly with no order as to costs. K.M. MEHTA J. - I have gone through the judgment prepared by my learned Brother, Justice A.R. Dave. I ful ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .88 carats or .995 fineness). If you have subscribed to gold bonds in the form of ornaments, gold returned to you after 15 years can be reconverted into ornaments of any purity. After that the Government had issued the procedure for obtaining gold bonds. Pursuant to the aforesaid scheme, the Government of India, Ministry of Finance (Department of Economic Affairs), New Delhi, issued a notification dated October 19, 1965, which reads as under: "No. F. 4(29)-W and M/65: Subscriptions for the issue of National Defence Gold Bonds, 1980, will be received without limit of amount from the 27th of October, 1965 to 31st of January, 1966, both days inclusive, but the Government of India reserve the right to close the issue earlier without notice. Subscriptions will be in the form of gold, gold coins and/or gold ornaments. The date of issue of the bonds will be the date on which the gold is tendered at the receiving office." Similarly, the National Defence Gold Bonds, 1980, scheme was issued and in that the procedure for filing the application was enacted. It was also stated that no questions will be asked on how you acquired the gold, no action will be take under the Gold Control or Cust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 per cent. Gold Bonds, 1977, or, as the case may be, the 7 per cent. Gold Bonds, 1980, held by him (including such bonds, if any, held on his behalf by any other person) did not in either case exceed ten thousand rupees at any time during the period to which the interest relates." In view of the aforesaid provisions of the Income-tax Act, it appears that gold bond is exempted from capital gain, interest on security and also interest payable on the gold bond, all are exempted under the payment of income-tax. As regards the provisions of wealth-tax, the Legislature had enacted section 5 of the Wealth-tax Act which provides as under: "5. Exemption in respect of certain assets. -(1) Subject to the provisions of sub-section (1A), wealth-tax shall not be payable by an assessee in respect of the following assets, and such assets shall not be included in the net wealth of the assessee. (xvia) 6 1/2 per cent. Gold Bonds, 1977, 7 per cent. Gold Bonds, 1980, and National Defence Gold Bonds, 1980. [Inserted by the Finance (No. 2) Act, 1965, with effect from April 1, 1965.]" In view of the same, the gold bond is also exempted from the payment of wealth-tax. It may be stated that the gold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... three different orders passed by the Wealth-tax Officer for three different assessment years. Being aggrieved and dissatisfied with the said orders, the assessee filed three appeals, namely, for the years 1981-82, 1982-83 and 1983-84 before the Appellate Assistant Commissioner of Income-tax at Baroda. The Appellate Assistant Commissioner of Wealth-tax, Baroda, by its order dated July 30, 1987, pleased to dismiss the appeals of the assessee and confirmed the order of the Wealth-tax Officer and held that the Wealth-tax Officer was justified in adding the value of gold to be exchanged by the appellant against National Defence Gold Bonds, 1980. Being aggrieved and dissatisfied with the said order of the Appellate Assistant Commissioner, the assessee filed appeals being W.T.A. Nos. 825 to 828/Ahd of 1987 before the Income-tax Appellate Tribunal at Ahmedabad Bench-C The Income-tax Appellate Tribunal after considering the provisions of law and judgments of other Tribunals was pleased to dismiss the appeals of the assessee by judgment and order dated December 1, 1989. Thereafter the assessee filed an application for reference before the Tribunal and the Tribunal by its order dated Au ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alue of the Bonds on the date of redemption." In view of the same learned counsel submitted that it is absolutely clear that whenever redeemed by return of gold, what is redeemed is the gold bond only and no other instrument. He has also invited my attention to circular No. 415 dated March 14, 1985, para. 1 of the said circular provides "these bonds were redeemable after 15 years, i.e., on or after October 27, 1980." Learned counsel therefore submitted that after October 27, 1980, the bonds remain bonds and the contention of the Revenue that the bond is not in existence after 1980, is an incorrect statement made on the basis of the said circular. He further submitted that the promise to return the gold is the essence of the bond and Rs. 2 per tola of gold per year not being payable after October 27, 1980, does not make it any the less a gold bond. Learned counsel has further referred to the said circular and stated that no capital gains will arise when the bonds are exchanged for gold on redemption. However, any subsequent sale, exchange or transfer of such gold within the meaning of section 2(47) of the Income-tax Act would attract capital gains tax in respect of capital gain a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1993, are being repaid in gold from March 14, 1998, at the offices of the Reserve Bank of India and designated branches of the State Bank of India. Learned counsel has also relied on the decision of the hon'ble Supreme Court in the case of Anarkali Sarabhai v. CIT [1997] 224 ITR 422, where on page 430, the hon'ble Supreme Court observed as under: "We are of the view that the High Court has come to the right decision in this case. The redemption of preference shares in the facts of this case will squarely come within the meaning of the phrase 'sale, exchange or relinquishment of the asset'." Learned counsel has also relied on the judgment of the Calcutta High Court in the case of CIT v. East India Charitable Trust [1994] 206 ITR 152, particularly on page 164, where the court observed as under: "The Wealth-tax Act defines 'asset' in a similar vein as the Income-tax Act defines 'capital assets'. The assets both for Wealth-tax and the Income-tax Acts, barring the specified exclusions, include property of every description, movable or immovable. The Wealth-tax Act has also an exclusionary part, but the exclusions stated therein like the exclusions in the definition of capital asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital gains' shall be payable on any profit or gain arising from the transfer of a capital asset. Under this charging section, the crucial requirements are that there must be a transfer and the transfer must be of a capital asset. The implication is that at the time of the transfer the subject of the transfer must be a capital asset. There is no further implication." Learned counsel has invited my attention to the judgment of the Income-tax Tribunal of Nagpur Bench in the case of Inspecting Assistant Commissioner v. Mrs. Sakina [1988] 27 ITD 370, particularly on page 374, the Tribunal has observed like this: "In any case, on the valuation date the asset in the possession of the assessee was National Defence Gold Bonds. Its possession was legally sanctioned and recognised in view of the extension granted for encashment of such bonds up to March 31, 1982. They continued to enjoy exemption under section 5(1)(xvia) of the Wealth-tax Act. As long as they were held as gold bonds and as long as the exemption available to such bonds was not withdrawn after October, 1980, such exemption had to be conferred on the assessee. The assessees were free not to encash or insist on the repayment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the case may be, if the assessee does not collect the money though so offered and kept ready, he may claim exemption, which is not the intent and purpose of section 5. Learned counsel for the Revenue further submitted that the submission of the assessee is also not tenable in law, e.g., a debenture matures or is to be redeemed on a particular day. Subsequent thereto in the books of account of the assessee, it would be stated "Debenture redemption receivable account", in the event the assessee has not received the amount under the debenture. The assessee cannot show the said amount under the head "Debenture account". Learned counsel for the respondent has relied upon the judgment of the Income-tax Appellate Tribunal, Bombay Bench, in the case of Executors and Trustees of the Estate of Late Shri R.G. Saraiya v. Second Wealth-lax Officer [1988] 24 ITD 211. The Tribunal in para. 4, on page 213, has held as under: "It could be seen that the contentions of the two sides are: (a) on behalf of the assessee that the document in his hands was the gold bond, and (b) on behalf of the Revenue, that it is gold or as good as gold. In our view, it is neither. We have to state the real natu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, 1980, such exemption had to be conferred on the assessee. The assessees were free not to encash or insist on the repayment of the gold bonds and were required to declare the value of the gold only after they received repayment in the form of gold on encashment of the bonds for which it had to follow certain set procedure. In my view the following passage from American Jurisprudence, second edition, volume 10, page 301, para. 339, also succinctly sets out the issue involved in this case. "339. Relation between general depositor and bank. -Although money on deposit in a bank is commonly considered to the property of the depositor, the relationship in fact between him and the bank is that of debtor and creditor, the amount on deposit represents merely an indebtedness by the bank to the depositor. It is therefore, a fundamental rule of banking law that in the case of a general deposit of money in a bank, the moment the money is deposited it actually becomes the property of the bank and the bank and the depositor assume the legal relation of debtor and creditor. The legal effect of the transaction is that of a loan to the bank upon the promise and obligation, usually implied by la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d therefore to that extent the Bombay Bench view is not correct in that behalf, therefore, to that extent I agree with the views expressed by the Nagpur Bench. I have considered the definition of bond which has been cited by Mr. Shah. I have also considered the notification dated October 19, 1965, and also the communication dated September 22, 1980, issued by the Ministry of Finance, Department of Economic Affairs, New Delhi. I have also considered the circular and the provisions of the Income-tax and Wealth-tax Acts which I have referred to earlier in this behalf. I have also considered the judgment of the Calcutta High Court in the case of CIT v. East India Charitable Trust [1994] 206 ITR 152 and another judgment of the Calcutta High Court in the case of CIT v. Hindusthan Welfare Trust [1994] 206 ITR 138. I have also considered the judgment of the Madras High Court in the case of M. Venkatesan v. OT [1983] 144 ITR 886. I have also considered the passage of American Jurisprudence, second edition, volume 10, which provides the relation between a general depositor and a bank. In view of the same, I hold that the Wealth-tax Officer, Assessing Officer and the Tribunal were not right ..... 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