COMMISSIONER OF INCOME TAX Vs. DEBMALYA SUR

JUDGEMENT

(1.) In this reference under Section 256(1) of the Income-tax Act, 1961, the following questions of law have been referred by the Tribunal for the assessment year 1981-82 :

(2.) 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 terms of Clause (42A) of Section 2. The Income-tax Officer, however, rejected the claim and assessed the capital gains as short-term capital gains taking the date of maturity which is October 27, 1980, as the date of acquisition of gold by the assessee. Thus, the time between the date of acquisition and the date of sale, i.e., October 27, 1980, and March 24, 1981, was less than six months. The gain was, therefore, treated as a short-term capital gain. In appeal, the Appellate Assistant Commissioner also did not accept the assessee's contention that the period of holding should be reckoned from the period of acquisition of the bond by the mother, viz., October 27, 1965. The assessee took the matter in appeal before the Tribunal.

(3.) The Tribunal held that the gold bond was obtained by the mother of the assessee (donor) on October 27, 1965, and the gold was lying with the Reserve Bank of India till it was redeemed on February 12, 1981, for a period of about 15 years. The Tribunal also held that the profit on sale of such gold should be treated as a long-term capital gain. The Tribunal considered the provisions of Section 49 and Section 2(42A) of the Act. If both these sections are to be read together, then the real interpretation is that, in the period of holding by the assessee who became the owner of the gold under a gift, there shall be included the period for which the asset was held by the donor, the previous owner referred to in the said section as per Clause (b) of the Explanation to Clause (42A) of Section 2. Short-term capital asset means a capital asset held by an assessee for not more than 36 months immediately preceding the date of its transfer. Even if the period of ownership held by the assessee's mother is not taken into account, the assessee became the owner from October 27, 1965, in accordance with Section 2(42A). It does not become a short-term capital asset. It is a different point that the gold deposited in the National Defence Gold Bonds is not a capital asset but, after redemption, this aspect assumes importance. The assessee himself held 4,915 grams of gold as owner from October 27, 1965, and he got it redeemed on February 12, 1981. The gold bonds matured on October 27, 1980. The gift was made immediately on the date when the gold was deposited in the National Defence Bonds, 1965. If the period of the gold bond is taken as 15 years, then the 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.