TaxTMI 
TaxTMI 
1993 (4) TMI 28
X X X X Extracts X X X X
X X X X Extracts X X X X
....f 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, 1980, as gift from his mother on October 8, 1979. The bonds were acquired by the mother in exchange for gold on October 27, 1965. On redemption, the assessee received 4,915 grams of primary gold on February 12, 1981. Out of such gold, he sold 3,100 grams at a consideration of Rs. 5,06,900 on March 24, 1981, resulting in a capital gain of Rs. 34,300, the cost of acquisition of the gold being taken as per value mentioned in the Government notification, dated September 22, 1980. In his return of income for the assessment year 1981-82, filed on July 8, 1981, the assessee disclosed such profit as short-term capital gains. In the course of assessment, the assessee came up with a plea that the gain should be considered as long-term capital gains computing the period of his holding from the date of acquisition of the gold bond by his mother, the donor, in term....
X X X X Extracts X X X X
X X X X Extracts X X X X
....assessee held the gold as owner for a period of 15 years. Calculating the period in this way and even taking the ownership of the assessee's mother into account as per clause (b) of the Explanation to clause (42A) of section 2 of the Act read with section 49, it would be more than 15 years. Therefore, it would be incorrect to say that the capital gain arising out of sale of gold is a short-term capital gain. We have heard the rival contentions which consisted of the same pleas as 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 capit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....provision deals with the mode of computation of cost with reference to certain modes of acquisition of assets. The relevant part of the provision reads: "49(1). Where the capital asset became the property of the assessee- (i) on any distribution of assets on the total or partial partition of a Hindu undivided family; (ii) under a gift or will;.... the cost of acquisition of the asset shall be deemed to be the cost for which the previous owner of the property acquired it, as increased by the cost of any improvement of the assets incurred or borne by the previous owner or the assessee, as the case may be." The fundamental misconception in the Tribunal's reading of the provision is that the Tribunal equates the receipt of the gift of the gold bond with the receipt of gold on conversion of the gifted bonds. The provision says that, where the capital asset became the property of the assessee under a gift, its cost should be the cost to the previous owner. It pre-supposes that the asset of which the cost is to be determined is the same asset which the assessee received by way of gift. If the asset gifted is converted into another asset, the former loses its identity and th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....connection, our attention has been drawn to a Circular 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 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 will be the market value of the Bonds on the date of redemption.' A question has arisen as to whet....