SUBHADRABEN SHANKERLAL PATEL Vs. WEALTH TAX OFFICER
LAWS(IT)-1989-12-2
INCOME TAX APPELLATE TRIBUNAL
Decided on December 01,1989

Appellant
VERSUS
Respondents

JUDGEMENT

K.R. Dixit, Judicial Member - (1.)IN all these appeals the question is whether the holder of a gold bond is entitled to exemption from wealth-tax in respect thereof after its date of redemption. The Wealth-tax Officer had denied the exemption to the assessees in respect of the gold bonds held by them. IN the case of Natwerlal and Dineshchandra for the asst. year 1981-82 the Wealth-tax Officer had resorted to reopening. The WTO's reason for denying the exemption was that the date for redemption of the gold bonds had already passed and the gold bonds did not retain their character as such. The AAC has confirmed those orders for the same reasons. He has also stated that the assessees had deliberately continued to hold the gold bonds after the maturity date and that it was a calculated move attracting the decision of the Supreme Court in the case of McDowell & Co. Ltd. v. CTO [1985] 154 ITR 148/ 22 Taxman 11.
(2.)The assessee had neither mentioned by way of a note in the returns nor in Part IV of the return anything regarding the ownership of the gold bonds. Therefore, the reopening was justified.
The question on merits has been considered by the Bombay Bench of the Tribunal in the case of Executors & Trustees of the Estate of Late Shri R.G. Saraiya v. Second WTO [1988] 24 ITD 211 where the Tribunal has observed as follows:-

It could be seen that the contentions of the two sides are: (a) on behalf of the assessee that the document in his hands was the gold bond, and (b) on behalf of the Revenue, that it is gold or as good as gold.

In our view, it is neither. We have to slate the real nature of this document on the maturity date. Now, when the gold bond is issued to a person, there is an agreement between him and the Govt. that the gold will be returned on a certain future date called the maturity date; and during that time, the assessee has the right to interest and he can also assign the bond. Under the terms of the bond, 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. Although it may be called a bond, actually it is no longer a bond. On the maturity date, it is merely a document of title to the gold. Its presentation to the Reserve Bank would entitle the holder of that document to the delivery of the gold.

As rightly pointed out by the learned Departmental Representative the Reserve Bank is merely custodian of the gold, of which the assessee is the owner. Since the gold bond could not be assigned alter the maturity date, its exemption from gift-tax would be of no relevance. The notes on clauses regarding the amendment to gift-tax on which the assessee's advocate relied cannot be taken into consideration for ascertaining the nature of this document for which only the rights and liabilities of the parties thereto have to be taken into account. We, therefore, hold that the exemption claimed by the assessee is not available. The document of title to the gold is a taxable asset.

(3.)HOWEVER, there is a later decision of the Tribunal in I AC v. Mrs. Sakina [1988] 27 ITD 370. In that case the Tribunal had noted that the date for repayment of the gold bond had been extended up to 31st March, 1982. It was argued before the Tribunal that the exemption under Section 5(l)(xiva) had not been withdrawn The Government of India granted permission under the Gold Control Act to the Grindlays Bank to sell the gold acquired against the gold bonds belonging to the assessee. The Tribunal noted the argument of the assessee's counsel that this proved that the holder of the gold bond was not ipso facto the, holder of the gold. The Tribunal has observed "in any case 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 31-3-1982. They continued to enjoy exemption under Section 5(l)(xiva) of the W.T. Act. As long as they were held as gold bond and as long as the exemption so 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 payment of gold bond and were required to declare the value of the gold only after it received repayment in the form of gold on encashment of the bond for which it had to follow certain set procedure.


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