TMI Blog1993 (4) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... , in accordance with section 2(42A), it does not become a short-term capital asset, is based on any material or perverse ? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the National Defence Gold Bonds, 1980, and the primary gold are the same capital asset whereas the former is not at all a capital asset within the meaning of section 2(14)(iv) of the Income-tax Act, 1961 ? (3) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that the capital gain arising out of the sale of primary gold by the assessee was a long-term capital gain?" The facts in brief are that the assessee received the National Defence Gold Bonds, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the mother, viz., October 27, 1965. The assessee took the matter in appeal before the Tribunal. The Tribunal held that the gold bond was obtained by the mother of the assessee (donor) on October 27, 1965, and the gold was lying with the Reserve Bank of India till it was redeemed on February 12, 1981, for a period of about 15 years. The Tribunal also held that the profit on sale of such gold should be treated as a long-term capital gain. The Tribunal considered the provisions of section 49 and section 2(42A) of the Act. If both these sections are to be read together, then the real interpretation is that, in the period of holding by the assessee who became the owner of the gold under a gift, there shall be included the period for which th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urged before the Tribunal. Here the crucial point is whether the gold and the gold bonds acquired in exchange for gold and vice versa can be treated as identical assets. Implicit in the assessee's contention is the proposition that the gold bonds and the gold received on redemption on maturity of the bonds do not lead to emergence of separate capital assets. Gold bonds are, according to this logic, equivalent to the quantity of gold which the bonds entitle the holder to receive in exchange for the matured bonds. Such plea is not based on the right kind of logic. Gold is a distinct asset within the definition of capital asset as contained in section 2(14) of the Act. Gold bond is another kind of capital asset which is excluded by legislati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e totally free of any liability to pay tax on the gains arising on sale of the gold received on redemption of the bond because the bonds are exempt from capital gains. In our opinion, when the gold is received on redemption of the bond, we have to take it that there is acquisition of gold as a fresh asset by conversion of another asset, viz., the gold bond. So, the Income-tax Officer's inference that the date of acquisition of the gold sold should be reckoned from the date of maturity of the bond is correct. In fact, the date of acquisition could have been taken as the actual date of redemption. The pitfall in the Tribunal's approach is that the Tribunal lost sight of the distinct identities of the gold and gold bond as different assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... situation, section 49(1)(ii) has no application. The provision which is directly on the point is not only section 49, but section 2(42A) read with section 49. Section 2(42A) defines "short-term capital assets" to the following effect : "Section 2(42A).-'Short-term capital asset' means a capital asset held by an assessee for not more than 36 months immediately preceding the date of its transfer . . . Explanation.-(i) In determining the period for which any capital asset is held by the assessee..... (b) in the case of a capital asset which becomes the property of the assessee in the circumstances mentioned in subsection (1) of section 49, there shall be included the period for which the asset was held by the previous owner referred to i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 415, dated March 14, 1985, which, in fact, takes the same view as has been canvassed by the Revenue. In the said circular, the Central Board of Direct Taxes has made it clear that no capital gains will arise when the bonds are exchanged for gold on redemption. However, subsequent sale, exchange or transfer of such gold would attract capital gains tax and the question as to whether the gains arising in such cases would be short or long-term would depend upon the passage of time between the date of redemption of the bonds and the subsequent sale of gold received on redemption. Paragraphs 1 and 2 of the said circular are extracted below : "'No capital gains will arise when the Bonds are exchanged for gold on redemption. However, any subs ..... X X X X Extracts X X X X X X X X Extracts X X X X
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