Case Law Details
IN THE ITAT AGRA BENCH
Shiv Kumar Agarwal
Versus
Deputy Commissioner of Income-tax
IT APPEAL NOS. 139 TO 142 (AGRA) OF 2012
[ASSESSMENT YEAR 2008-09]
SEPTEMBER 14, 2012
ORDER
Bhavnesh Saini, Judicial Member
All the appeals above by different assessees are directed against different orders of ld. CIT(A)-II, Agra dated 23.02.2012 for the assessment year 2008-09. Since the issue involved in all the appeals is same, therefore, all were heard together and we dispose of the same through this common/consolidated order. Both the parties mainly argued in the case of assessee, Shri Shiv Kumar Agarwal and have stated that the issue is same in other appeals. Therefore, for the purpose of disposal of all the appeals, we take the facts from the case of Shri Shiv Kumar Agarwal.
ITA No. 139/Agra/2012(Sh. Shiv Kumar Agarwal):
2. The assessee filed present appeal on the following grounds :
“1. That the Authorities below have erred on facts and in law while making of the assessment of the income under the head long term capital 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. 415 and also ignoring of the decision of Hon’ble High Court of Calcutta, the circular issued by the CBDT is binding upon all the subordinate authorities to the Central Board of Direct Taxes under section 119 of Income Tax Act. After taking into consideration the circular issued by the CBDT, date and acquisition cost of gold is to be taken i.e. date and value of the gold, on the day of redemption of the Gold Bond when the same was received to assessee, the short term capital gain as shown by the assessee on the sale of Gold is liable to be accepted.
4. That the appellate order passed by the Commissioner of Income Tax(Appeals)-II, Agra dated 23.2.2012 is bad in law.”
3. The assessee has earned income from salary, other sources and income from capital gains. During the course of assessment proceedings, it was found that the assessee had deposited gold of 1.044 kg. on 27.11.1999 in Gold Deposit Scheme 1999. Thereafter, he redeemed the certificate of gold on 22.11.2006 and finally sold the gold on 07.11.2007 at an amount of Rs.10,63,000/-. In the computation of income, the assessee has treated the date of maturity, i.e., 22.11.2006 as the date of acquisition and 07.11.2007 as the date of sale and finally treated the income arising out from this sale as short term capital gains. There is no difference of opinion with regard to date of sale, however, the AO asked the assessee as to why the income should not be treated as long-term capital gains because the date of acquisition should be the date on which the assessee had deposited the gold in gold deposit scheme, 1999 on 22.11.1999 and the assessee had been enjoying tax free interest since then. The assessee submitted before the AO that the short-term capital gain has arisen on the sale of above gold being the gold which was in possession of the assessee in the year 1999 was transferred in the gold bonds immediately after the deposit of the same under the gold bond scheme. Thus, the nature of capital asset, which was in possession of the assessee in the shape of gold stood changed, i.e., from gold to gold bonds. Further, at the time of redemption, the capital asset which was in the shape of bond certificates in possession of the assessee was further changed into the gold. Thus, the gold, which was received by the assessee on redemption was a new capital asset came to be in possession of the assessee 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. The AO further noted that the gold certificates can be liquidated before its maturity. The rate of gold to be received at the time of maturity was not determined, but the prevailing market rate of gold would be received whenever the certificate is encashed. The scheme relates to custody of the gold and premium is paid to the subscriber to compensate them for the changes. The AO, therefore, did not accept the contention of the assessee and treated the date of acquisition of gold as on 27.11.1999 and computed the long-term capital gains. On appeal, the assessee reiterated the submissions made before the AO and also relied upon the Board’s circular No. 415 dated 14.03.1985 and the same decision. However, the ld. CIT(A) dismissed the appeal of the assessee.
4. The ld. Counsel for the assessee reiterated the submissions made before the authorities below and submitted that the cost and date of acquisition of the gold for the purpose of computing the capital gains is to be taken, i.e., date on which gold has been received by the assessee on redemption of the gold bonds, which is also clarified by the Board in Circular No. 415 dated 14.03.1985. He has relied upon following decisions :
(i) Decision of Calcutta High Court in the case of Debmalya Sur (supra),
(ii) Order of ITAT, Mumbai Benches in the case of Smt. L.M. Parikh v. Sixth ITO [1990] 36 TTJ 29 (Bom.).
(iii) Decision of ITAT Ahmedabad Bench in the case of Vyavasaya v. ITO [1989] 30 ITD 205 (Ahd.).
On the other hand, the ld. DR relied upon the orders of the authorities below.
5. We have considered the rival submissions and the material on record. The facts noted above have not been disputed by the parties. The assessee deposited gold on 22.11.1999 in gold deposit scheme, 1999. The redemption certificate of gold was issued on 22.11.2006 and the assessee sold the gold on 07.11.2007. Thus, the gold bond remained in possession of the assessee till redemption of certificates was issued. The transfer can take place only if the transferor is in a position to do so. Therefore, it was necessary that the transferor should have a full title over the property, which he transfers and he must be in full possession of the property. When the assessee has deposited the gold in gold deposit scheme, 1999, there created an agreement between him and the Government and gold bonds were issued in favour of the 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 Government of India had issued in the year 1965, National Defence Gold Bonds, 1980. These Bonds were redeemable after 15 years, i.e., on or after 27th October, 1980. It was clarified in the Press Communique bearing No. MMS/MMM/ANT/361/3 dated 22nd September, 1980, issued by the Department of Economic Affairs, Ministry of Finance, that:
“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 s. 2(47) of the IT 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 be the market value of the Bonds on the date of redemption.”
2. A question has arisen as to whether such capital gains should be treated as long-term or short-term capital gains. The question has been examined by the Board. The exchange of gold bonds at the time of redemption is an altogether fresh transaction when an assessee acquires a different asset. It has also been decided above that for the purposes of the computation of capital gains, cost of acquisition of gold would be the market value of the bonds on the date of redemption. The material date in this case would, therefore, be the date of redemption of gold bonds which would be treated as the date of acquisition of the gold. As per s. 2(42A), “Short-term capital asset” means a capital asset held by an assessee for not more than 36 months immediately preceding the date of transfer. The question as to whether the gains arising in such cases would be short or long-term would, therefore, depend upon the time that has passed between the date of redemption of gold bonds and the subsequent sale of gold.
3. The above instructions may please be brought to the notice of all officers.”
5.2 Hon’ble Calcutta High Court in the case of Debmalya Sur (supra) held as under :
“Gold is a distinct asset within the definition of capital asset as contained in s. 2(14). Gold bond is another kind of capital asset which is excluded by legislative deliberation from the said definition of capital asset. “Capital asset” is defined in the said provision, in the first instance, in an exhaustive manner and then showing specific exclusions. Therefore, it is very clear that when a person exchanges gold for the gold bond, he acquires 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 correct. In fact, the date of acquisition could have been taken as the actual date of redemption. If the asset gifted is converted into another asset the former loses its identity and the conversion of the same as an asset becomes an independent asset. The conversion snaps its nexus with the gift and the converted new asset cannot retain its character as the gifted asset. In such a Situation, s. 49(1)(11) has no application. The provision which is directly on the point is not only s. 49, but s. 2(42A) r/w. s. 49. Since the redemption by itself is a transaction of acquisition of a new capital asset, viz., primary gold, there could be no question of relating back the date of acquisition of such primary gold on redemption either to the date of investment in the gold bonds by the donor or the date of receipt of such bonds as gifts by the donee, the assessee herein. The quantity of gold received on redemption is a new asset unrelated to the mode of acquisition of the gold bond. The Tribunal was not 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.”
5.3 ITAT Mumbai Bench in the case of Smt. L.M. Parikh (supra) held –
“The circular No. 415, dated 14th March, 1985, issued by the CBOT lays down that capital gains will not arise when the bonds are exchanged for gold on redemption but would arise on subsequent sale of the gold and for this purpose the computation shall be on the premise that the cost of acquisition of gold is market value of the bonds on the date of redemption. The press communique issued by the Finance Ministry on 22nd Sept., 1980, incorporating the guidelines also states that for the purposes of computation of capital gains, the cost of acquisition of gold is the market value of the bonds on the date of redemption. On the date when the press communique was issued, only one date of redemption was conceivable and that was the date when the bonds were going to mature. Obviously, therefore, what is implied in the press communique is the date of maturity of the bonds, and could not be the actual date of redemption. It may also be stated that the bonds were also in the nature of debt or liability and their date of discharge would be the date when the same were due to be discharged which, in this case, was 27th Oct., 1980. When the gold bond is issued to a person, there is an 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 respect of National Defence Gold Bonds is the date on which not only the title to the gold vested in the assessee but also the date on which he acquired the possession thereof.”
5.5 In the Board’s circular No. 415 (supra), it was decided that for the purpose of computation of capital gains, the cost of acquisition of the gold would be the market value of the bonds on the date of redemption. The same point has been decided in favour of the assessee by Hon’ble Calcutta High Court and Mumbai and Ahmedabad Bench of ITAT (supra), in which it was held that gold bonds are different capital assets from gold redeemed and the question whether capital gains are short-term or long-term on the sale of gold have to be determined qua the date of redemption. May be the above circular pertains to National Defence Gold bonds, but no other/different circular on the gold scheme 1999 has been brought on record by the Revenue Authorities. Therefore, the same would also apply to the matter in issue in the present appeals. Since it is not in dispute that on the date of maturity, i.e., 22.11.2006, the certificates of gold were redeemed, therefore, 22.11.2006 should be considered as the date of acquisition of the gold for the purpose of computation of capital gains. The authorities below were, therefore, not justified in rejecting the claim of assessee for short term capital gains on redemption of bonds. The cost of acquisition of the gold is to be taken, i.e., value of gold on the date of redemption of certificates when a new capital asset has come into existence in possession of the assessee. Earlier, the gold in possession of the assessee had lost its identity when the same was converted into bonds. The Bonds cannot be treated as gold nor the gold can be treated as bonds. Since no specific circular has been brought to our notice dealing with the Gold Deposit Scheme, 1999 and there is no serious challenge to the above decision cited by the ld. Counsel for the assessee, we are of the view that the authorities below were not justified in taking the date of acquisition as 22.11.1999 instead of 22.11.2006. We, therefore, set aside the orders of the authorities below and direct that the cost and the date of acquisition of the gold for the purpose of computing the capital gains be taken as the date on which the gold has been received by assessee on redemption of the gold bonds, i.e., 22.11.2006. In the result, the appeal of the assessee is allowed.
ITA No. 140, 141 & 142/Agra/2012 :
6. The issue is same in these appeals as has been considered in ITA No. 139/Agra/2012. Accordingly, by following the reasons for decision in ITA No. 139/Agra/2012, the orders of the authorities below are set aside and the appeals of the assessees are allowed in terms decided above.
7. In the result, all the appeals of the assessees are allowed.
