TMI Blog2014 (1) TMI 554X X X X Extracts X X X X X X X X Extracts X X X X ..... e. All the transactions were made taking advantage of the National Defense Gold Bonds 1980, as scheme as per notification dated 19.10.1965, amended on 19.11.1965, and the communiques issued by the Government of India on 22.9.1980 - Decided in favour of assessee. - INCOME TAX REFERENCE NO.184 OF 1987, 185 OF 1987, 186 OF 1987, 55 OF 1989, INCOME TAX APPLICATION (D) NO.13 OF 1998, INCOME TAX REFERENCE NO.87 OF 1991, 88 OF 1991, 176 OF 1991, 178 OF 1991, 21 OF 1996, 2 OF 1998, 28 OF 1999, 36 OF 1999, 51 OF 1999, - - - Dated:- 14-12-2012 - Sunil Ambwani and Aditya Nath Mittal, JJ. JUDGEMENT 1. These references under Section 256 (1) of the Income Tax Act, 1961 (the Act) relating to the assessment year 1981-82 (previous year ending 31.3.1981 and 1982-83 (previous year ending on 30.6.1981) arise out of the orders passed by the Income Tax Appellate Tribunal in Kanodia Group of cases. Separate reference application was filed by the revenue, before the Tribunal. The common question of law raised in all these references is as follows:- "Whether in law and on facts of the case the I.T.A.T. was justified in holding that the transactions were not adventure in the nature of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds. 6. In the press communique issued by the Government of India on 22.9.1980 before the date of redemption commencing from 27.10.1980, the gold bond received on redemption were either to be sold to a licensed dealer/certified goldsmith or the same were to be converted into ornaments through licensed dealer/certified goldsmith. The gold so received on exchange of gold bond were to be treated as a capital asset within the meaning of Section 2 (47) of the Income Tax Act which could attract capital gain tax. The relevant portion of the communique provided:- "7. The bond holders will be issued a certificate by the bond repaying office at the time of delivery of the gold to them indicating the details of the gold bars/discs received by them. The recipients of gold shall, within a period of 6 months, from the date of receipt of gold, either sell the said gold to a licensed dealer/certified goldsmith or get the said gold converted into ornaments through a licensed dealer/certified goldsmith. On the basis of the certificate issued by the bond repayment offices at the time of delivery of the gold to the bond holders as aforesaid, a licensed dealer/certified goldsmith can pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st of the gold bonds as there was "no pride of possession, or systematic satisfaction" involved in holding these gold bonds:. As a matter of fact, the well planned manner in which the Kanodia family including the sole beneficiary of the Trust want about creating trusts and Companies, making centralized purchases of gold basis even out of borrowings, making gifts, selling gifted gold bonds and requiring gold bonds and then selling gold clearly point out an attempt to make profit in the hope of exempting...capital gains in view of the Govt. notification exempting capital gains from sale or transfer or gold bonds. In this connection I may make a reference to the detailed discussion above of the series of transactions uncovered as a result of search operation and the details of which are given in the assessment order." 8. The Tribunal after considering the entire material recorded the a finding that there was no colourable device or dubious names involved in the case as all the transactions done by the assessee were recorded in the books of account which were found in the course of search. The Tribunal held:- "There was no question of converting the gold into gold jeweller ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /October, 1980 onwards, making use of front organization, companies and firms and also members of their families in which 10 companies, 8 individuals, 2 firms, and 5 trusts were involved. The volume of purchase and sale of these gold bonds was in the vicinity in the tune of Rs. 2 crores. The investment in purchase of gold bonds were made from the borrowed fund. 10. Shri R.K. Upadhyay appearing for the Income Tax department has made a summary of the facts of these cases to support the order of AO and submits that the entire transactions were adventure in the nature of trade and the profits were taxable. The summary disclosing the profits is as follows:- "1. ITR No. 87 of 1991 Smt. Kavita Kanodia v. CIT AY 1981-82 [Previous year ending on 31.3.1981] (Arising out of ITA No. 1736/A/1987) Date of purchase weight amount 9.9.1980 900 gms Rs.1,16,100 12.9.1980 1,600 gms 2,11,200 27.10.1980 3,300 gms 4,78,500 8,05,800 Date of sale weight amount 21.1.1981 100 gms 23.1.1981 1,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kanodia also purchased gold bonds worth Rs.10,73,100/- as under: Date of purchase weight amount 4.9.1980 200 gms. Rs. 25,500 11.9.1980 1,400 gms. 1,80,600 17.9.1980 1,000 gms. 1,32,000 27.9.1980 5,000 gms. 7,35,000 10,73,100 4. ITR No. 186 of 1987- CIT v. Raghuraj Kanodia Trust AY 1982-83 [Previous year ending on 30.6.1981] (Arising out of ITA No.2203/A/1985) Trust created with a nucleus of Rs.251/-. Sole beneficiary Raghuraj Kanodia (Minor) s/o Shri S.P. Kanodia Date of purchase weight amount 29.3.1979 gift from D.P. Kanodia 5,000 gms. Rs.3,72,500 18.9.1980 sale out of gifted bonds 3,700 gms. 5,52,200 600 gms. 29.10.1980 sale 700 1,02,900 6,55,100 22.9.1980 purchase 2,600 3,56,200 4.2.1981 converted into gold 2,600 4,31,600 16.2.1981 sale of gold 2,600 4,32,320 [Source: Order of CIT (A) paragraph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unt of income from sale of gold bonds. 9. ITR No.36 of 1999- CIT v. Shri D.P. Kanodia AY 1981-82 (Arising out of ITA No. 2176/A/1996) Penalty of Rs.8,000/- u/s 273(2)(aa) of the Act for similar additions as in ITR No.28 of 1999. 10. ITR No.51 of 1999- CIT v. Shri D.P. Kanodia (Individual) AY 1983-84 (Arising out of ITA No. 1204/A/1989) Profit on sale of gold after redemption of gold bonds of Rs.64,812/- 11. ITR No.176 of 1991- CIT v. Shri D.P. Kanodia Smt. Indira Kanodia AY 1981-82 (Previous year ending on 31.3.1981) (Arising out of ITA No. 1734/A/1987 ITA No.1737/A/1987) Assessment Order dated 24.9.1984 in the case of Shri D.P. Kandia starts from page 16 of paper book. Special facts of the case have been given at page 30 of the paper book. Date of purchase/sale weight amount 1968 originally subscribed 17,561 gms. Gifted 1,300 gms. 30.7.1980 5.9.1980 sale 9.9.1980 purchase 2,500 gms. Rs.3,22,000 26.3.1981 sale (part) 1,40,760 Profit on sale of gold bonds Rs.24,272/- in the case of Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of trade; Laxmi Co. vs. CIT (1961) 43 ITR 415 Alld in which it was held that the solitary transaction of purchase and sale of silver bars by cloth agent was adventure in the nature of trade; Raja Dhanraj Giriji vs. CIT (1971) 79 ITR 463 (AP) in which it was held that the pledge and sale of jewellery and purchase and sale of shares was an adventure in the nature of trade; CIT v. Sutlej Cotton Mills Supply Agency Ltd (1975) 100 ITR 706 in which the Supreme Court held that the shares purchased with borrowed funds with dominant intention of the assessee to make profit by resale was adventure in the nature of trade and Anil Jain v. CIT (2007) 294 ITR 435 SC in which where units were purchased with borrowed funds and after receiving dividents, units were sold at loss and similar operation was carried out in subsequent year, the transaction was held in the nature of trade. 12.Shri R.K. Upadhyay has also relied upon CIT v. Associated Industries Company (1971)82 ITR 586; CIT v. H. Holck Larsen (1986) 160 ITR 67; Fidelity North Star Fund In Re (2007) 288 ITR 641 and 291 ITR 385 in which the Circulat dated 15.6.2002 has been discussed. He submits that the nature of transactions in the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the NDG Bonds which were purchased were sold by the assessees in a very short span of time. The transaction in question involved in each case is an isolated one and did not form part of a series of transaction. None of the transactions are from the line of business pursued by each assessee. Tulsidas Tanna entered into a contract dated May 15,1979, took delivery of the bonds on January 4,1980 and sold them on January 8,1980, making a profit of Rs. 36,000 on the sale of gold bonds. The transaction in question reveals that the payment was made and delivery of bonds was taken after six months though they were sold within four days from the date of delivery but that itself cannot be a ground to hold that the assessee has indulged in the transaction in the nature of adventure. Similar are the facts of the case of Kalyanji Tanna and Lamikant Tanna whereas the case of Shri Tushar Tanna (HUF) is on a better footing so far as admitted fact of showing purchase of bonds on November 30, 1978, whereas delivery was taken on December 24, 1979, that is almost after one year whereas the sale is on January 4,1980. Initially, the intention appears to be of investment because in some cases the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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