SUNIL AMBWANI, ADITYA NATH MITTAL, JJ. - (1.) THESE references under Section 256 (1) of the Income Tax Act, 1961 (the Act) relating to the assessment year 1981-82 (previous year ending 31.3.1981 and 1982-83 (previous year ending on 30.6.1981) arise out of the orders passed by the Income Tax Appellate Tribunal in Kanodia Group of cases. Separate reference application was filed by the revenue, before the Tribunal. The common question of law raised in all these references is as follows:- "Whether in law and on facts of the case the I.T.A.T. was justified in holding that the transactions were not adventure in the nature of trade and the profits in question are not revenue profits."
(2.) THE Yaduraj Kanodia Trust, Kanpur is assessable as an AOP. The trust came into existence on 26.9.1978 with Master Yaduraj Kanodia (minor son of Shri G.P. Kanodia) as its sole beneficiary. During the previous year, relevant to the assessment year 1980-81, the trust received by way of gift the National Defence Gold Bonds weighing 10000 gms from Shri D.P. Kanodia & Smt. Ratan Devi Kanodia (wife of Shri B.M. Kanodia). These National Defence Gold Bond 1980 were issued as per notification dated 19.10.1965 (as amended upto 19.11.1965) issued by the Ministry of Finance, Department of Economic Affairs. The relevant para of the notification provided:- "Wealth Tax, capital Gains Tax and Estate Duty. The bonds will be exempt from wealth tax and any capital gains from their sales or transfer will not be subject to income-tax. Capital loss if any will not be eligible for being set off, Gifts, in a year, of Bonds by the initial subscriber will be exempt from Gift Tax to the extent of the value of Bonds for an aggregate weight of five kilogrammes of gold. The Bonds will also be exempt from Estate Duty on the first occasion on which they pass on the death of a holder to the extent of the value of Bonds for an aggregate weight of fifty kilogrammes of gold." Besides other benefits/immunities, National Defense Gold Bond enjoyed exemption from capital gain tax; and in the hands of the initial subscriber, gift of such bonds was exempted from gift tax, subject to a ceiling of 5000 gms in the case of one initial subscriber/donor. The trust received by way of gift 5000 grams of gold on 16.10.1978 and another 5000 grams of gold on 29.3.1979 with market value of Rs. 3,20,000.00 and Rs.3,72,000.00 respectively.
(3.) THE repayment of gold bonds was to start from 27.10.1980. Prior to the arrival of the said date, the assessee sold the gifted quantity of gold bonds of 3000 grams on 5.9.1980; 5000 grams on 6.9.1980 and 2000 grams on 18.9.1980 (total 10000 grams of the value of Rs. 12,67,000.00.;