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2012 (12) TMI 839

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....l gain, as against short term capital gain shown by the assessee on the sale of gold acquired on the redemption of gold bond, short term capital gain as shown by the appellant is liable to be accepted and addition made on this score is liable to be deleted.  2.  That, the Authorities below have erred on facts and in law while making the assessment of the income, on the sale of gold as long term capital gain as against short term capital gain shown by the" assessee. The cost and date of acquisition of the gold for the purpose of computing of the capital gain is to be taken i.e. the date on which the gold has been received to assessee on the redemption of the gold bond which is also clarified in the circular issued by the CBDT and also held by the various Hon'ble High Courts. The cost and date of acquisition of gold taken by the AO i.e. day on which it was deposited with gold bond scheme has wrongly been taken, income disclosed by the assessee on the sale of gold is liable to be assessed under the head short term capital gain.  3.  That the Authorities below have erred on facts and in law while not following of the circular issued by the CBDT, dated 14.3.1985 No....

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....on redemption of gold bond certificate, therefore, the value/acquisition cost of the gold is to be taken as value of gold on the date of redemption of the certificate when a new capital asset has come into existence in possession of the assessee. Old gold, which was in possession of the assessee earlier, lost its identity with the same was converted into bond. The bond cannot be treated as gold nor gold can be treated as bond. The bond cannot be sold in the market at the rate of gold and both gold and bonds are of different identity. The assessee, therefore, rightly treated the same as short-term capital gains on sale of gold, which was received by the assessee on redemption from gold bond. The assessee relied upon the decision of Hon'ble Calcutta High Court in the case of CIT v. Debmalya Sur [1994] 207 ITR 996. The AO, however, did not accept the contention of the assessee because the assessee remained owner of the gold for the period gold was deposited in gold deposit scheme and the certificates were transferable at the option of the owner and further the assessee enjoyed tax free interest. However, the judgment relied upon by the assessee pertains to National Defence Bond Scheme....

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....he assessee subject to interest. The assessee was entitled to get back the gold on the date of maturity. Therefore, on the maturity date, the character of the gold bond certificate would change. On the maturity date, it was merely a document of title of the gold and on redemption of the certificate, the assessee would be entitled for possession of the gold as per the Scheme. Thus, the nature of the capital asset which was in possession of the assessee in the shape of gold became changed, i.e., from gold to gold bonds and at the time of redemption of the capital asset, which was in the shape of gold bond certificate in possession of the assessee, was further changed into the gold and thus, the gold which was received by the assessee on redemption was a new capital asset came in possession of the assessee on redemption of gold bond certificate. 5.1 Circular No. 415, though pertained to National Defense Gold Bonds, but explain the similar issue and reads as under : "National Defence Gold Bonds, 1980-Transfer of gold after redemption-Date of acquisition of gold for the purpose of capital gains-Instruction regarding 14/03/1995 (sic - 1985) CAPITAL GAINS SECTIONS 2(42A) The Governm....

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....s an altogether new species of capital asset which is left out of the scope of capital gains taxation. Again, when a person exchanges the bond for gold, he acquires a new species of capital asset which comes within the net of capital gains tax. What has been urged on behalf of the assessee is based on complete equation between gold and gold bonds. The entire line of submission pressed on behalf of the assessee wants one to assume that, even after conversion of the gold bonds into primary gold, there is no acquisition of a new capital asset and the bonds and the gold remain one and the same asset. The contention is fallacious. In that event, as a logical extension of the theory so advanced, the assessee should be 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. 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 ITO's inference that the date of acquisition of the gold sold should be reckoned from the date of maturity of the bond is correc....

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.... agreement between him and the Government that the bond will be returned on a certain future date, called the maturity date and during that time, he has the right to interest and he can also assign the bond. Under the terms of the agreement, the holder has a right to get back the gold on the maturity date whereupon the interest would cease and it would no longer be assigned. Therefore, on the maturity date, the character of this document which was the bond, would change. It would not bear interest and it would lose assignability. On the maturity date, it is merely a document of title to the gold and its presentation to the Reserve Bank would entitle the holder of that document to the delivery of the gold. Thus, the gold bond had its existence only upto the date of maturity, i.e., 27th Oct., 1980. In the circumstances, the cost of acquisition of the gold in the hands of the assessee has to be determined with reference to that maturity date and not with reference to the actual date on which the assessee obtained gold by surrendering the gold bonds." 5.4 The ITAT Ahmedabad Bench in the case of Vyavasaya (supra) held as under: "Relevant date regarding price of gold obtained in respec....