TMI Blog2002 (12) TMI 16X X X X Extracts X X X X X X X X Extracts X X X X ..... of section 27(1) of the Wealth-tax Act, 1957 (hereinafter referred to as "the Act"): "Whether, on the facts and in the circumstances of the case, the assessee was entitled to the exemption under section 5(1)(xvia) in respect of the National Defence Gold Bonds, 1980?" The facts giving rise to the reference, in a nutshell, are as under: In 1965, a declaration was made by the Union of India to the effect that the country wanted to strengthen its defence forces against possible aggression by enemy countries and, therefore, the country needed arms and armaments and machines that would make arms and armaments so that the country can become self-sufficient 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 exchan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tial subscriber of the bond. The Ministry of Finance had issued a notification dated October 19, 1965, giving details with regard to the above gold bond. In clause (5) of the said notification it was also provided that the gold bond would be exempt from wealth-tax and capital gains arising from its sale or transfer. In pursuance of the notification referred to hereinabove and the policy laid down by the Union of India, clause (xvia) of section 5(1) of the Act provided for exemption to the gold bond as under: "6 1/2 per cent Gold Bonds, 1977, 7 per cent. Gold Bonds, 1980, and National Defence Gold Bonds, 1980." The question, in the instant case, has arisen 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 yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . If, according to the provisions of section 5(1)(xvia) of the Act, the gold bond was exempted in respect of payment of wealth-tax, then the authority had only to look at the fact whether the assessee was having the gold bond. If the answer was in the affirmative, that is, if it can be said that the assessee was having the gold bond, then the authority was bound to exempt the assessee's holding of the gold bond. According to him, the revenue authorities have substantially erred in considering the said gold bond as gold. The gold bond cannot be treated as gold for any purpose under the Act. It has been also submitted by him that the Union of India had issued several press 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nment and it should be treated at par with gold. It has been, thus, submitted by him that after the date of maturity, the gold bond cannot attract exemption provided under section 5(1)(xvia) of the Act. We have heard learned counsel at length and have also considered the judgments cited by them. Upon hearing the learned advocates and perusal of the law laid down in the judgments referred to by the learned advocate, the following factual position emerges: Section 5(1)(xvia) of the Act was enacted as under with effect from December 13, 1962, by the Taxation Laws (Amendment) Act, 1962: "To exempt 6 1/2 per cent. Gold Bonds, 1977." Subsequently, by the Finance (No. 2) Act, 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he question is whether the Revenue can be permitted to say that the gold bond had lost its important characteristics and, therefore, it did not remain National Defence Gold Bond, 1980, after its date of maturity. Simply because some of the characteristics had been changed, in our opinion, the basic characteristic of the gold bond would still remain. Thus, we have to come to a conclusion that there was no change even after October 27, 1980, so far as the exemption in respect of the gold bond is concerned and the gold bond remained as it was even after its date of maturity and the exemption given to it in respect of payment of wealth-tax continued. Looking to the fact that section 5(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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ri Bhatt for the Revenue. What was important was fulfilment of the main obligation by the Government. Till gold was given to the bondholder in exchange for the bond, the gold bond retained its important characteristic of a gold bond. It may incidentally be stated that the assignability and payment of Rs. 2 per annum for every ten gms. of gold were only additional attractions for the purchase of the gold bond. It is also pertinent to note that for the purpose of calculation of capital gains, by virtue of a notification dated September 22, 1980, issued by the Government, it had been clarified that the market value of the gold bond on the date of its redemption was to be taken into account. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in 1975, he cannot claim that the amount of cash received by him would be subject to exemption because that amount was received in exchange for the gold bond. So as to have exemption under the Act, it was obligatory on the part of the assessee to have the gold bond in the same form. Thus, the argument that the interpretation put forward by the assessee, if accepted, would be absurd, is not tenable and, therefore, is not accepted by us. Finally, we may refer to one litmus test, which would be as under- whether the gold bond remained a gold bond after October 27, 1980, if it had not been exchanged for gold? The clear-cut answer would be "yes". Even if not exchanged for gold after October 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otic citizens place your gold in trust with the Government. Recent experiences have taught us that we cannot depend on others. In any case, dependence on outside help will only make us weaker. To be strong, we must learn to rely on ourselves. Fortunately, we have plenty of gold in our country to tide over the crisis. Most of us have gold ornaments or gold coins. The country needs them now. Exchange them for gold bonds before January 31, 1966. Our freedom and our future, and even the safety of our lives and of those we love, depend on how much gold is handed over to the Government now. The Government gives the solemn promise that the gold will be returned to you after 15 years in standard purity (23.88 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: Subscripti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n responsible for paying any income by way of interest on securities shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax at the rates in force on the amount of the interest payable." Clause (iii) of section 193 of the Income-tax Act provides as under: "any interest payable on 6 1/2 per cent. Gold Bonds, 1977, or 7 per cent. Gold Bonds, 1980, where the Bonds are held by an individual not being a non-resident, and the holder thereof makes a declaration in writing before the person responsible for paying the interest that the total nominal value of the 6 1/2 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 exem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would have to include the value of the gold to be exchanged against the bonds after October 26, 1980, in the total wealth. In view of the above foregoing the value of the gold to be obtained against National Defence Gold Bonds, 1980, grammes 1,639 and computed the liability of total wealth under the Wealth-tax Act. The said assessment order was passed for the assessment year 1981-82 and the order was passed on March 2, 1985. It may be noted that identically for the assessment year 1982-83 also the Wealth-tax Officer passed the order and for the assessment year 1983-84 also. The Wealth-tax Officer passed the order and included the value of National Defence Gold Bonds, 1980, which was not encashed by the assessee. So there were 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee in exchange for the gold bond. Learned counsel has invited my attention to the communication dated September 22,1980, issued by the Ministry of Finance, Department of Economic Affairs, New Delhi, title Press Communique, National Defence Gold Bonds, 1980, particularly para. 9 of the said communication which reads as under: "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 gains arising from such sale, exchange or transfer. For the purpose of computation of capital gains, the cost of acquisition of gold would be the market value 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Calcutta, Hyderabad, Jaipur, Kanpur, Chennai, Nagpur, New Delhi and Patna, said an RBI press release. The release further said that the holders of the bonds may approach the above offices of RBI to obtain the delivery order in exchange for the discharged bonds. Gold can be collected by the holders of the bonds themselves or through their authorised representatives. Holders can also collect their gold upto the market value of Rs. 20,000 by registered and insured post subject to prescribed conditions. Learned counsel has further invited my attention to press release Gold Bonds Scheme, 1993. Repayment issued from PIB Press Release, New Delhi, dated August 1, 2001. The said press release provides that the bonds issued under the Gold Bonds Scheme, 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it in any manner it chooses. In the case of hiring out of the car it is a contract of bailment whereas the bank deposit is a case of a debt." Learned counsel for the petitioner has also invited my attention to the decision of this court in the case of CIT v. Elecon Engineering Co. Ltd. [1976] 104 ITR 510, particularly on page 519, where the court has observed that there would be nothing which is superfluous or redundant in an Act or a provision of an Act placed on the statute book by the Legislature. Learned counsel has also invited my attention to the decision of the Madras High Court in the case of M. Venkatesan v. CIT [1983] 144 ITR 886. On page 888, the court observed like this: "Section 45 of the Income-tax Act enacts that tax under the head 'Capital 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds would cease to carry interest. Further, their assignability also ceases on the maturity date. Thus, for all intents and purposes, they cease to be "bonds" and are transformed as a receipt for collection of gold. Learned counsel for the Revenue further submitted that, if the argument of the assessee is accepted, it may lead to serious absurd results. For one assessee, exemption will cease in 1980, for another it may be available for years thereafter that, e.g., up to the year 2000, that too in respect of the same gold bonds. Such a situation will also have direct bearing on the like exempting security, e.g., sections 5(xv), 5(xvi), 5(xvib), 5(xvid), 5(xvie), 5(xxiv), 5(xxva), 5(xxvb), etc. In such cases, even after the maturity date or the date for redemption, 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The only way the bond can come to an end is by repayment of the gold, which is the promise given by the document called "gold bond". The promise can come to an end by fulfilling it. Till then the promise is in existence. The promissory note fixed duration is in existence till the promise to repay is fulfilled. In my view the gold bonds 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 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the judgment of the Tribunal of the Nagpur Bench which is in favour of the assessee where the Tribunal has given the correct reasons in this behalf. It is no doubt true that the Bombay Bench has decided in favour of the Department. I have gone through the reasoning of the said decision also. In my view the reasoning of the Tribunal that on the maturity date, the character of this document which was the bond would change is not correct. It is no doubt true that it will not yield any interest future, however still in the eye of law it remains a bond, it is like a fixed deposit receipt where the fixed deposit receipt has already matured. Still in the eye of law it remains a fixed deposit receipt though the bank or other institution may not give interest on the said amount and 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 Affai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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