1. This is an appeal by the assessee, which is directed against the order of the AAC, wherein he has confirmed the assessment of income of Rs. 35,000 arising on sale of gold bonds. Smt. Bharatiben H. Shah, wife of Shri Hareshkumar N. Shah, residing at 53A, Dr. Alagappa Chettiar Road, Madras-84, settled a sum of Rs. 500 in favour of her nephew Kartikeya Nagri son of Shri Rashmikant Rasiklal Nagri on 8-3-1978 for his benefit to be held upon trust by four trustees consisting of her husband and other three persons. The trust deed provides that the said amount together with accumulations and accretions and further contributions received by the trust and the income arising therefrom shall accrue solely to be utilised for the benefit of the beneficiary who was born on 28-11-1977 (age of the child was three months and 10 days). The trust deed gives wide powers to the trustees to sell, convey or otherwise realise any of the trust properties and invest the same to his accounts and accumulate; to commence and carry on any business or to take over any business and to enter into partnership with any party or parties. The trust shall cease as and when the beneficiary attains the age of 21 years and the trust shall distribute the corpus of the trust fund together with all accretions and accumulations to the beneficiary and on doing so shall be discharged from all further obligations under the trust. The trustees filed return for the assessment year 1981-82 for which the accounting year ended on 31-3-1981 admitting income of Rs. 5,210, The assessee also admitted income of Rs. 35,000 being the surplus from sale of gold bond, but claimed exemption under Section 2(14)(iv) of the Income-tax Act, 1961 ('the Act'), treating the bond as not a capital asset. The ITO rejected the claim of the assessee and treated the surplus as trading results.
Thus, he assessed the interest income of Rs. 6,598 and surplus on sale of gold bond as business.
2. On appeal the assessee reiterated the same contentions that the surplus was not liable to be taxed on the ground that the assessee was not a dealer in National Defence Gold Bonds, 1980, and the bond was held only for investment purposes and not stock-in-trade. It was also claimed that the National Defence Gold Bond was not a capital asset in terms of Section 2(l4)(iv) and, therefore, the capital gains arising on the sale of the bond was not liable to be taxed. The AAC held, agreeing with the view taken by the ITO, that though the assessee cannot be said to be a dealer in gold bonds, nevertheless the income arose out of an adventure in the nature of trade. For this reason he also held that the surplus was not in the nature of capital gains, which is exempt under Section 2(14)(iv). Accordingly, he sustained the assessment and dismissed the appeal filed by the assessee.
3. The learned representative of the assessee reiterated the grounds taken in this appeal. According to him, the AAC having held that the assessee was not a dealer in National Gold Bonds, he erred in holding that the income accrued in the course of activity which is adventure in the nature of trade. Further the sale proceeds of gold bonds were not taxable as per notification dated 19-10-1965. He further submitted that there was dispute among the trustees as to the quantum of gold bonds to be invested and as a result of that dispute the trustees sold the earlier bond and again purchased another bond of 500 gms. Even in the accounts, the purchase and sale of gold bond were shown in the capital account of the trust and reflected in the balance sheets of the respective years. Yet a further submission made by the learned counsel for the assessee was that a single or solitary transaction will not be a trading adventure unless it bears a clear indicia of trade and the burden of proof in such cases lies on the department to prove that the adventure was undertaken from a profit-making motive.
4. The learned departmental representative on the other hand supported the order of the AAC. He further submitted that the assessee has been earning interest income by lending to various persons and deposit in banks and the appreciation in gold bonds is of the same nature as interest income earned by the assessee through other activities.
5. We have duly considered the rival contentions. We have also gone through the deed of trust dated 8-3-1978, the salient features of which were extracted already. The whole issue is to be approached with reference to the circumstances such as terms of the trust deed, the powers of the trustees and the various other activities carried on by the trustees to build up the income and the funds of the trust.
Starting with a nominal amount of Rs. 500 on 8-3-1978 the assessee was able to account for capital of Rs. 65,155.15 as per trial balance as on 31-3-1980, i.e., in a period of two years and 23 days. The capital balance shot up to Rs. 1,05,493.84 as on 31-3-1981, which includes the sale proceeds of earlier bond and purchase of second bond for Rs. 60,050 each. The balance stood at Rs. 1,09,060.45 as per trial balance as on 31-3-1982, while it shot up to Rs. 1,38,217.48 as on 31-3-1983.
By any stretch of imagination the capital accretion could not have jumped by leaps and bounds by investment alone without carrying out activities which are akin to adventure in the nature of trade. The following are the activities in the National Defence Gold Bonds : From the above extract it is clear that the assessee has purchased the second bond on 28-4-1980 just six months before the maturity date of the initial National Defence Gold Bond issued by the Government.
Naturally the cost of the bond shot up from Rs. 50.10 per gram as on 2-4-1979 then the first gold bond was purchased by the assessee to Rs. 1,201 on 28-4-1980. This sudden increase in the rate of value of the bond held great attraction for the assessee to dispose of the earlier bond purchased on 2-4-1979 and in the result the assessee sold the same two days later on 30-4-1980 for the same rate and for the same amount, In the common course of events as the maturity date drew nearer the attraction for holding gold bonds also increased with the prospect of getting gold bars from the Government and for this reason the assessee decided to dispose of the first bond in order to make use of the same proceeds for purchasing the second bond. In all probability the tran-s action for purchase of second bond and the sale of the first bond would have been taken simultaneously not only to meet the funds for acquisition of second bond but to realise the exorbitant profit by disposing of the earlier bond inasmuch as both the transactions were put through the same broker. Para 7 of the trust deed has given wide powers for the trustees to commence and carry on any business or take over any business or enter into partnership with any party or parties.
Thus, the intention of the trust has been amply proved by the activities in the purchase and sale of gold bond which amounts to adventure in the nature of trade. It is not a case of solitary transaction because the assessee has purchased two bonds and sold one of them with the obvious intention and purpose of earning exorbitant profit on transfer of the bonds as the maturity date was drawing very close. In this view of the matter, the AAC was justified in holding that the income arose out of adventure in the nature of trade. When once it is held that the income arose out of adventure in the nature of trade it is immaterial whether the assessee chose to hold the bonds as investment and that too for a short period which is not normally the case. Taking into account the rapidity in which the transaction took place the contention of the assessee that it held the bonds as investment is also not acceptable. The plea given by the learned counsel for the assessee that there was dispute among the trustees as to the quantum of gold to be retained by the trustees is only a plea without any support or evidence. Although the assessee was specifically required to produce any documentary evidence in this regard it was not produced. Therefore, this contention is not tenable. Further the assessee is not the subscriber of the original National Defence Gold Bonds as per the scheme which prevailed between 27-10-1965 to 31-3-1966. The notification dated 19-10-1965 specifically exempts the initial subscriber of the bond from gift-tax up to 5 kg. of gold and from estate duty on the first occasion when the bonds pass up to 50 kg.
of gold. From this a clue can be taken that the original subscribers of the bond would be exempt from capital gains arising on transfer of bonds and not a dealer in shares or an adventurer. In this view of the matter we uphold the order of the AAC and reject the grounds taken by the assessee.
1. The assessee is a family trust whose sole beneficiary is Karthikeya R. Nagri. The assessee- trust was formed by a deed of trust dated 8-3-1978. 500 gms. of National Defence Gold Bonds, bearing No. 602045 was purchased by the assessee on 2-4-1979 for Rs. 25,050. The said bond was sold by the assessee on 30-4-1980 for Rs. 60,050 and a surplus of Rs. 35,000 was received by the assessce. The ITO has taxed the difference of Rs. 35,000 as business income. The ITO's order runs as under : The assessee has filed a return on 11-5-1981 admitting a total income of Rs. 5,210. Mr. R.P. Kochar, chartered accountant appeared.
Case was discussed. The income is computed as under : The assessee has admitted Rs. 6,698 as interest receipt. The outgoing are Rs. 100. The balance is brought to tax. The assessee has admitted income from sale of gold bonds at Rs. 35,000. He claims this as exemption under Section 2(14)(iv). The exemption cannot be granted because the assessee had purchased the gold bonds and sold them.
Therefore, this is only a trading receipt. Hence, exemption cannot be granted. The sum is brought to tax : In accordance with Section 2(14)(iv), National Defence Gold Bon2s should not be considered as capital assets lor the purpose of computation of capital gains under the Income-tax Act. That is to say, no capital gains can be computed for taxation on the sale of National Defence Gold Bonds. In the present case, the ITO treated the difference between the purchase and sale price of the gold bonds as a trading receipts. In other words, the amount has been treated by him as taxable under the head 'Profits and gains of business or profession'. While the appellant cannot be a dealer in gold bonds, it is nevertheless borne by this case that this income has accrued to the appellant in its activities, which is adventure in the nature of trade. Accordingly, I am of the opinion that the amount does not come under the purview of 'Capital assets' under Section 2(14)(iv), In this view of the matter, I consider that the ITO has brought this amount to tax in accordance with law. The appeal is dismissed.
3. Aggrieved, the assessee is in appeal before us. According to the learned counsel for the assessee, it is not correct to consider that the assessee is a dealer in National Defence Gold Bonds. According to the learned counsel, the said bond was held only for the purpose of investment and not as stock-in-trade. He further submitted that the authorities below are not correct in coming to the conclusion that the income had accrued in the course of his activities as an adventure in the nature of trade. It was also pointed out that profit made from the sale of gold bonds will not be subjected to income-tax. On the other hand, the learned departmental representative supported the order passed by the AAC, We have heard the rival submissions made by the parties, 4. The AAC has clearly held that no capital gains can be computed for taxation on the sale of National Defence Gold Bonds. The only question that arises for consideration before us is whether the sale of said gold bond and realisation of Rs. 35,000 over and above the original cost price will amount to adventure in the nature of trade.
5. The impugned transaction is not liable to tax as per Circular Letter No. F.No. 34/ll/65-IT(A-l) dated 15-1-1966, wherein it was stated as under : A question has been raised whether the investment of ornaments in gold bonds would attract capital gains tax in the hands of the investor. The legal position appears to be that in most of the cases, gold ornaments would not constitute 'capital asset' within the meaning given in Section 2(14), as these ornaments must have been held for the personal use of the assessee or a member of his family. Therefore, the exchange of these ornaments for gold bonds would not be regarded as the transfer of capital asset.
2. Under the Gold Bond Scheme, a premium of Rs. 3 per 10 grams of gold of standard fineness is payable in order to compensate the subscriber of the gold ornaments for the charges which he had incurred in making these ornaments. As this payment is merely a compensation for making the charges, the payment of this premium is not likely to result in any income or gain in the hands of the subscriber. In other cases also, where the ornaments might not have been held for the personal use of the assessee, the investment would not result in any capital gain as the subscriber is merely entitled to receive gold some years hence in lieu of the ornaments tendered now.
3. In view of the circumstances stated above, it has been decided that no attempt should be made to start proceedings for computation of capital gains or loss in case where gold ornaments are tendered for subscription, to the gold bonds.
According to the assessee, the purchase of gold bond in question was only an investment and the subsequent sale was only realisation of capital. 500 gms. of National Defence Gold Bonds bearing No. 602045 was purchased by the trust on 2-4-1979 for Rs. 25,050 from Shri S. Shah, 129, Radha Bazar Street, Calcutta. One more gold bond of 500 gms. was purchased by the trust on 28-4-1980 through Chandravadan Desai, stock and share brokers, Calcutta at the rate of Rs. 1,201 per gram. The said bond No. is 10508.
6. As there was a difference in opinion amongst the trustees regarding the advisability of holding one kilogram of National Defence Gold Bonds as investment, the first bond of 500 grams was sold through Chandravadan Desai, stock and share broker, Calcutta-1 on 30-4-1980 for Rs. 1,201 per gram. The gold bond No. is 002045. Thus, exemption under Section 2(14)(iv) is claimed.
7. The trust is created and is in existence till the minor attains the age of 21 years. The trustees shall have the power to investments in shares, stock, debentures and other securities and other investments.
The trustees shall also have power to sell, convey or otherwise realise any of the trust properties and invest the same to his accounts and accumulate. The trustee shall also have power to commence and carry on any business or takeover any businesses and the same shall form part of the trust property. They can also have power to enter into partnership with any party or parties.
8. The question is whether the trustees have started any business as stated in the trust deed. It is settled law that it is for the revenue to establish that the profit earned in a transaction is within the taxing provision and is, on that account, liable to be taxed as income-G. Venkataswami Naidu &Co.v. CIT [1959] 35 ITR 594 (SC), Janki Ram Bahadur Ram v. CIT [1965] 57ITR21 (SC), Saroj Kumar Mazumdar v. CIT [1959] 37 ITR 242 (SC), CIT v. Premji Gopalbhai [1978] 113 ITR 785 (Guj.), ITO v. Rani Ratnesh Kumari [1980] 123 ITR 343 (All.), Janab Abubucker Sail v.CIT [1962] 45 ITR 37 (Mad.), CIT\. Raunaq Singh Swaran Singh [1972] 85 ITR 220 (Delhi), Dalmia Cement Ltd. v. CIT[ 1976] 105 ITR 633 (SC), Deep Chandra & Co. v. CIT [1977] 107 ITR 716 (All.) and 81 ITR 286 (sic). The revenue has not only to establish that the transaction is an adventure but it has also to go further and establish that it is in the nature of trade. The revenue has to show that the nature of the transaction is such as is normally entered into by persons who carry on trading activity in Kali Nath v. CIT[1973] 88 ITR 347 (AIL). The burden can be discharged by pointing to circumstances which lead to the conclusion that the transaction is an adventure in the nature of trade, Saroj Kumar Mazumdar's case (supra), and not by indulging in mere surmises- Michael A. Kallivayalil v. CIT [1976] 102 ITR 202 (Ker.). But it is not a matter of merely counting the number of facts and circumstances pros and cons ; what is important to consider is their distinctive character. In each case, it is the total effect of all relevant factors and circumstances that determines the character of the transaction-CEPT v. Shri Lakshmi Silk Mills Ltd. [1951] 20 ITR 451 (SC), V.S. Govindarajulu Chettiar v. CEPT [1957] 34 ITR 594 (Mad.), P.M. Mohammed Meerakhan v. CIT [1969] 73 ITR 735 (SC), CIT v. Asian Dry Dock Co. [1977] 108 ITR 822 (Bom.), Deep Chandra & Go's case (supra) and CIT v. Jawahar Deve- lopment Association [1981] 127 ITR 431 (MP).
Amongst the relevant facts to be seen in this behalf are : firstly, as to whether the transaction in dispute was or was not in the line of business of the assessee and, secondly, whether it was an isolated or a single instance of the business or there was a series of similar transactions-Rani Ratnesh KumarVs case (supra), Janki Ram Bahadur Rani's case (supra), CIT v. P.K. N. Co. Ltd. [1966] 60 ITR 65 (SC) and Estate Investment Co. Ltd. v. CIT [1980] 121 ITR 580 (Bom.).
9. In this case, the department has not brought on record any evidence to show that the assessee has started the business of purchase and sale of gold bond and the profit arose thereon was adventure in the nature of trade. A single or solitary transaction will not be a trading adventure unless it becomes clear indicia of trade-Narain Swadeshi Wvg.
Mills v. CEPT [1954] 26 ITR 765 (SC) and G. Venkataswami's case (supra).
10. The onus placed on the department was not discharged in this case to prove that the adventure was undertaken for a profit-making motive- Lalit Ram Mangilal v. CIT [1950] 18 ITR 286 (All.), Saroj Kumar Mazumdar's case (supra) and Michael A. Kallivayalil's case (supra) even in the return what is admitted is only interest income and not sale proceeds of gold bonds. Therefore, the evidence on record clearly shows that the purchase of gold bond in question was only as an investment and the subsequent sale was only realisation of capital.
11. Notification No. F. 4(29) W and M dated 19-10-1965 as amended states: The Bonds will be exempt from wealth-tax and any capital gains from their sale 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.The exemption applicable only to the 'initial subscriber' in the case of gift-tax and the 'exemption from estate duty on the first occasion' is not applicable to the income-tax proceedings and wealth-tax proceedings because such an embargo is not placed in the cases of exemption granted in income-tax and wealth-tax proceedings. In the present case, the trustees have purchased 500 gms. of gold bond on 2-4-1979 and another gold bond of 500 gms. on 28-4-1980. The first bond was sold on 30-4-1980 and the second bond was retained by them. The sale of first bond was due to some discussions with regard to avoiding any possible risk in possession of gold bond worth more than 1 kg.
Looking into the totality of transaction there is no element of adventure in the nature of trade or business. The surplus arising from the disposal of gold bond is capital. Therefore, I am unable to agree with the conclusion arrived at by my learned brother on this point in this appeal.
12. In the result, the orders of the authorities below on this point is set aside and the appeal filed by the assessee is allowed on this point.
As there is a difference of opinion between the members we refer the following two questions to the President under Section 255(4) of the Act: 1. Whether the transaction of purchase and sale of gold bond No. 602045 is or is not an adventure in the nature of trade and consequently whether the surplus arising therefrom is liable to be taxed or not 2. Whether the exemption under Section 2(14)(iv) applies only to the original subscriber to the National Defence Gold Bond, 1980 or to any subsequent holder of the same 1. In this case there was a difference of opinion between the learned Accountant Member and the learned Judicial Member before whom the appeal had come up for hearing and the questions on which there was a difference, which have been formulated and referred to me, are as under : 1. Whether, the transaction of purchase and sale of gold bond No. 602045 is or is not an adventure in the nature of trade and consequently whether the surplus arising therefrom i s liable to be taxed or not 2. Whether the exemption under Section 2(14)(iv) applies only to the original subscriber to the National Defence Gold Bond, 1980 or to any subsequent holder of the same 2. The learned Accountant Member in his order has given the facts relating to the constitution of the trust and the background thereof.
The deed of trust is dated 8-3-1978 and the author of the trust was one Smt. Bharatiben N. Shah. The beneficiary was only one, viz., Kartikeya Nagri, who was born on 28-11-1977 and who was the nephew of the author of the trust. There were four trustees, viz., Hareshkumar N. Shah, Smt.
Kalpana Nagri, Sumanlal Shah and Jitendra Shah. The trust was started with corpus of Rs. 500. The trust had purchased a gold bond of 500 gms.
bearing No. 002045 on 2-4-1979 for Rs. 25,050. According to the contention of the assessee, this bond was sold on 30-4-1980 for a sum of Rs. 60,050 and there was a surplus of Rs. 35,000. The surplus, the assessee claimed, was a capital receipt and was not liable to tax. The ITO considered that the transaction was an adventure in the nature of trade. He did not give any other reasons for holding that it was a trading receipt but only stated that the exemption under Section 2(l4)(iv) could not be granted because the assessee had purchased the gold bonds and had sold them. To complete the picture, the assessee had on 28-4-1980 purchased another gold bond bearing No. 10508 for the same value of Rs. 60,050.
3. The assessee appealed and the AAC dismissed the appeal and, hence, it was that the issue came up before the Tribunal.
4. The learned Accountant Member had traced the growth of the funds of the trust starting from 1978 and has pointed out that starting with a nominal amount of Rs. 500 on 8-3-1978, the capital went up to Rs. 65,155 on 31-3-1980, i.e., in a period of two years and 23 days. It further shot up to Rs. 1,05,493 as on 31-3-1981, which included the sale proceeds of the first bond and purchase of the second bond for Rs. 60,050 each and as on 31-3-1982 the balance stood at Rs. 1,09,060 and as on 31-3-1983 it shot up. to Rs. 1,38,217. According to the learned Accountant Member, by any stretch of imagination the capital accretion could not have jumped by leaps and bounds by investment alone without carrying out activities which are akin to adventure in the nature of trade. The learned Accountant Member set out the transaction relating to the gold bond referred to and stressed on the fact that there was sudden increase in the rate of value of the bond which was purchased on 2-4-1979 and that in all probability the transaction for purchase of second bond and the sale of the first bond would have been taken simultaneously not only to meet the funds for acquisition of second bond but to realise the exorbitant profit by disposing of earlier bond inasmuch as both the transactions were put through the same broker. The plea of the assessee was that there was a dispute amongst the trustees as to the quantum of gold to be retained but, according to the learned Accountant Member, it was a plea without any support or evidence. Since the assessee was not the original subscriber to the gold bond, the learned Accountant Member held that, only the original subscriber of the bond would be exempt from capital gains arising on transfer of bonds and not a dealer in share or an adventurer. Accordingly, the learned Accountant Member dismissed the appeal of the assessee.
5. The learned Judicial Member also after setting out the background of the case and referring to the notifications relating to gold bonds and various judicial pronouncements, came to the conclusion that there was no element of adventure in the nature of trade or business and the surplus arising from the disposal of gold bond is capital and looking to the terms of Notification No. F. 4(29)-WM/65, dated 19-10-1965, he considered that there was nothing to restrict the exemption of capital receipts to the initial subscriber of the gold bond in the case of income- tax.
6. I have heard the learned counsel for the assessee and the learned departmental representative. The trust no doubt started with a corpus of only Rs. 500 on 8-3-1978. Subsequently, on 9-3-1978, a gift of Rs. 18,000 was received from K. Shobana, on 10-3-1978 a gift of Rs. 17,000 was received from T.R. Sankaranarayanan and on 11-3-1978 a gift of Rs. 15,000 was received from K. Pankajam. The facts were brought to the notice of the ITO in filing the return for the assessment year 1978-79.
Thus, there were gifts of Rs. 50,000 which amount stood invested as on 31-3-1978 with the firm of Natwarlal Shah. The investment in Natwarlal Shah changed slightly in the next year and there was a further investment in Suhas Traders and the interest receipts and the balance on 31-3-1979 went up to Rs. 56,829. On 31-3-1980 the balance went up to only Rs. 65,000 which was by way of accretion of interest mainly. On 31-3-1981 the balance went up to Rs. 1,05,000, which was because of the surplus realised from the sale of gold bond, purchased for about Rs. 25,000, for Rs. 60,000. On 31-3-1982 the balance stood at Rs. 1,09,000 which was again only as a result of increase by way of interest, etc.
The assessee had made some investments in the unit trust. On 31-3-1983 the balance went up to Rs. 1,38,217 which was also by way of accretion of interest, etc.
7. On tracing the aforesaid accretion of interest, barring the transaction in gold bond, which would be adverted to later, there is no trading transact ion which is evident. The increase in capital has been by way of yield from investments from time to time. The pattern of increase is, therefore, no suggestive of any trading activities having been carried on by the trust.
8. Coming to the transaction in gold bond, the first transaction was one of purchase of gold bond on 28-4-1980 by a contract entered into with Chandravadan Desai. The gold bond bearing No. 10508 was to be purchased for Rs. 60,500. On this date no doubt the trust did not have funds. But immediately thereafter, on 30-4-1980 there was a contract of sale, at the same price of Rs. 60,050 for the earlier gold bond No.002045 with the same party. The trust did not have funds but the payment for the purchase was made from the firm of Nitinkumar Nimchand by issue of cheque on 26-5-1980, to Chandravadan Desai for Rs. 60,050.
Haresh- kumar N. Shah, a trustee, is said to be a partner of Nitinkumar Nimchand. Nitinkumar Nimchand in its turn got back a cheque for Rs. 60,050 from Chandravadan Desai on 29-5-1980 for the sale of the gold bond. The opening balance with Nitinkumar Nimchand, which the assessee had, was Rs. 28,930 and the carried over balance was Rs. 4,681. The assessee had also purchased through Nitinkumar Nimchand some shares of Punjab Tractors Ltd. for Rs. 29,000.
9. The above analysis shows that the assessee had not been dealing in securities. Earlier the purchase and sale of gold bond was only an isolated transaction. In this transaction a surplus was made. It cannot be said that there was plunge into trade in making these transactions.
There is also nothing to show that at the time of purchase of gold bond the assessee had any evidence of selling the same within a short period. For all these reasons I would hold that the surplus of Rs. 35,000 did not arise from any adventure in the nature of trade.
10. I, therefore, answer that the transaction from the purchase and sale of gold bond under consideration was not liable to be taxed as an adventure in the nature of trade. The question that still arises is whether it is liable to be taxed or not. For this purpose it is in my view unnecessary to go into any notification. If the receipt is a capital receipt, it is taxable only if it is a surplus from 'capital asset' within the meaning of Section 2(14). Section 2(14) states that capital asset means property of any kind held by an assessee whether or not connected with his business or profession. But there are certain specific exceptions. As long as the item, the sale of which has resulted in a surplus, comes within the exception, it is not a capital asset. Otherwise a property would be a capital asset and the provisions of Section 45 of the Act would apply to the surplus arising from the transfer of the capital asset. Section 2(14)(iv) expressly excludes from the concept of capital asset the National Defence Gold Bond.
Therefore, the present asset in question is not a capital asset. It does not matter whether this item'of property, which is not a capital asset is held by the first purchaser or by the second purchaser. In the hands of any assessee it is not a capital asset and as long as it is not a capital asset in the hands of a particular assessee, the provisions of Section 45 and other provisions relating to capital gains cannot apply. I would, therefore, hold that since the surplus did not arise from any adventure in the nature of trade and was not a capital surplus which could be taxed as capital gain, the answer to the first question would be that the transaction was not an adventure in the nature of trade and the surplus arising therefrom was not liable to be taxed.
11. As far as the second question is concerned, in the light of the above discussion and the provisions of Section 2(l4)(iv), in my opinion, the gold bond in question is not a capital asset within the terms of Section 2(14)(iv) irrespective of the fact that whether it is held by the original subscriber or by a subsequent holder. The gold bond ceases to be an asset under Section 2(14)(iv). The second question is answered by me accordingly.