1992 (9) TMI 119 - AT - Wealth-tax

Appellate Tribunal upholds assessees' entitlement to exemption for National Defence Gold Bonds

The Appellate Tribunal ruled in favor of the assessees, confirming their entitlement to the exemption under section 5(1)(xvia) of the Wealth-tax Act for ... Gold Bonds Issues:1. Entitlement to exemption under section 5(1)(xvia) of the Wealth-tax Act for National Defence Gold Bonds, 1980, for assessment years 1987-88 and 1988-89.Detailed Analysis:The judgment by the Appellate Tribunal ITAT CALCUTTA-C involved ten appeals where the main issue was whether the assessees were entitled to the exemption under section 5(1)(xvia) of the Wealth-tax Act for National Defence Gold Bonds, 1980, for the assessment years 1987-88 and 1988-89. The department objected to granting the exemption, arguing that the character of the Bonds as Bonds ceased upon maturity, and the value of the gold should be included in the assessments based on a previous Supreme Court decision. However, the Tribunal disagreed with this view, citing the provisions of the Public Debt Act, 1944, and the Negotiable Instrument Act, 1881. The Tribunal emphasized that the Bonds were issued under the Public Debt Act and were in the form of Promissory Notes payable to order, making them negotiable instruments. The Tribunal concluded that the department's objection could not be upheld based on these statutory provisions.Another objection raised by the department was that the Government of India held the gold in trust for the assessee after the maturity of the gold bonds, thus disqualifying them from the exemption under section 5(1)(xvia). However, the Tribunal pointed to section 6 of the Public Debt Act, which explicitly stated that the Government is not bound by any trust in respect of Government securities and shall not be regarded as a trustee. The Tribunal further clarified that any directions given by the holder of the Government security regarding the gold did not create a trust but were considered as an 'act of grace' by the Government without any liability. Therefore, the contention that a trust was created post-maturity was deemed untenable by the Tribunal.Additionally, the Tribunal referenced a decision by the Calcutta High Court to support the argument that the character of the Bonds did not change even after maturity. The Tribunal highlighted that the Government's actions, such as allowing redemption through Public Debt Offices and circulars issued by the CBDT, indicated that the exemption provision was not withdrawn due to the Bonds ceasing to be gold bonds post-maturity. The Tribunal emphasized that the statutory provisions and the intention of the Government supported the continuation of the exemption under the Wealth-tax Act.Lastly, the Tribunal addressed the department's argument based on the Supreme Court's decision in McDowell's case regarding tax avoidance measures. The Tribunal concluded that claiming the exemption provided by the statute itself did not constitute a tax avoidance measure, especially when the language of the relevant provisions was clear. The Tribunal held that the assessees were entitled to the exemption under section 5(1)(xvia) of the Wealth-tax Act for the National Defence Gold Bonds, 1980, based on the interpretation of the statutory provisions and relevant legal principles.In conclusion, the Tribunal allowed the appeals, ruling in favor of the assessees and confirming their entitlement to the exemption under section 5(1)(xvia) of the Wealth-tax Act for the National Defence Gold Bonds, 1980.