IN THE HIGH COURT OF GUJARAT AT AHMEDABAD WEALTH TAX REFERENCE No 34 of 1991 For Approval and Signature: Hon'ble MR.JUSTICE A.R.DAVE and Hon'ble MR.JUSTICE K.M.MEHTA ============================================================ 1. Whether Reporters of Local Papers may be allowed : YES to see the judgements? 2. To be referred to the Reporter or not? : YES 3. Whether Their Lordships wish to see the fair copy : NO of the judgement? 4. Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? 5. Whether it is to be circulated to the concerned : NO Magistrate/Magistrates,Judge/Judges,Tribunal/Tribunals? -------------------------------------------------------------- SHANKERLAL GAFURBHAI PATEL Versus COMMISSIONER OF INCOME TAX -------------------------------------------------------------- Appearance: 1. WEALTH TAX REFERENCE No. 34 of 1991 MR JP SHAH for Petitioner No. 1 MR MANISH R BHATT for Respondent No. 1 -------------------------------------------------------------- CORAM : MR.JUSTICE A.R.DAVE and MR.JUSTICE K.M.MEHTA Date of decision: 21/12/2002 ORAL JUDGEMENT (Per : MR.JUSTICE A.R.DAVE) At the instance of the assessee, the following question of law, arising out of the order passed by the Income Tax Appellate Tribunal, Ahmedabad Bench 'C', has been referred to this court for its opinion under the provisions of sec. 27(1) of the Wealth-tax Act, 1957 (hereinafter referred to as 'the Act') : "Whether, on the facts and in the circumstances of the case, the assessee was entitled to the exemption u/s 5(1)(xvia) in respect of the National Defence Gold Bonds, 1980?" 2. The facts giving rise to the reference, in a nutshell, are as under : 3. In 1965, a declaration was made by the Union of India to the effect that the country wanted to strengthen its defence forces against possible aggression by enemy countries and, therefore, the country needed arms and armaments and machines that would make arms and armaments so that the country can become self-sufficient in the matter of its defence. The country required machinery and raw material for the industries to support the people's efforts. The country required fertilizers and farm equipments to grow more food so as to see that dependence on foreign countries is reduced. For all these purposes, the country was not having sufficient gold and, therefore, an appeal was made to the citizens that idle gold, which the people of the country were having, should be handed over to the country so that the need for valuable gold to earn foreign exchange for the country can be satisfied. 4. Looking to the said need of the country, in 1965, the Union of India had issued the National Defence Gold Bonds, 1980 (for short "Gold Bond"). The said Gold Bonds were to be issued in exchange of gold, gold coins and gold ornaments by the Government. All the gold, which the Government was to receive from the citizens, was to be returned to them after 15 years. Thus, under the said scheme, a citizen had to give his gold, gold coins or gold ornaments to the country and in exchange thereof the citizen was to be issued the Gold Bond. The said scheme was open till 31.1.1966 i.e. till that date it was open to the citizen to give his gold, gold coins or gold ornaments to the country and in exchange thereof he was to get the Gold Bond. The said bonds were to be again exchanged for gold after 15 years. The date of maturity, which was declared at the relevant time, was 27.10.1980. Thus, the Government had promised the citizens that in return of the Gold Bond the Union of India would return the gold so received from the citizens on 27.10.1980. It is also pertinent to note that there were certain characteristics of the said Gold Bond. Special incentives were given to the citizens so that they may surrender their idle gold to the country. The Government had declared that no questions would be asked to the citizen as to how he acquired the gold and no action was to be taken against him in pursuance of the Gold Control Act or any other regulations in respect of the gold given. The gold, which was to be given to the country, was to be sent to a mint and was to be refined to the tune of 23.88 ct. and the Government was to issue the Gold Bond stating the quantity of gold received by the Government. 5. It was also decided that a sum of Rs. 2/- per 10 gms. of refined gold would be paid to the bearer of the Gold Bond every year. Thus, return of Rs.2/- per 10 gms of gold was also assured to the bearer of the Gold Bond. In addition to the above attraction, it was also declared that the first subscriber of the Gold Bond would be exempted in respect of Gift Tax, Estate Duty and Wealth Tax. No gift tax was to be paid by the first subscriber in respect of gift of the Gold Bond upto 5000 gms. of gold in one year and the Gold Bond was also exempted from payment of estate duty on the occasion of death of the initial subscriber of the bond. The Ministry of Finance had issued a notification dated 19.10.1965 giving details with regard to the above Gold Bond. In clause (5) of the said notification it was also provided that the Gold Bond would be exempt from Wealth Tax and capital gains arising from its sale or transfer. 6. In pursuance of the notification referred to hereinabove and the policy laid down by the Union of India, clause (xvia) of sec. 5(1) of the Act provided for exemption to the Gold Bond as under : "6 1/2% Gold Bonds, 1977, 7 per cent Gold bonds, 1980, and National Defence Gold Bonds, 1980" 7. The question, in the instant case, has arisen on account of the peculiar facts of the case. The assessee had subscribed to the Gold Bond. Even after the date of maturity of the Gold Bond, the assessee did not offer his Gold Bond to the Government of India for getting his gold back. In the circumstances, the question which arose was whether the Gold Bonds were eligible for exemption under the provisions of sec. 5(1)(xvia) of the Act. 8. The assessee had claimed exemption u/s 5(1)(xvia) of the Act in respect of the Gold Bonds held by him for the A.Y. 1981-82 to 1983-84. The Wealth-tax Officer rejected the claim on the ground that the date of redemption had already been over, the Gold Bond retained was not eligible for the exemption. Being aggrieved by the order passed by the WTO, the assessee filed an appeal before the Appellate Authority. The Appellate Authority confirmed the order passed by the WTO observing that the assessee had deliberately continued to hold the Gold Bonds even after the date of maturity and thereby he had made an effort to get undue advantage of clause 5(1)(xvia) of the Act. The Appellate Authority referred to the law laid down by the Supreme Court of India in the case of McDowell & Co., 154 ITR 148, and held that the assessee was not eligible for the exemption. 9. Being aggrieved by the appellate order, the assessee approached the Tribunal by filing an appeal. The Tribunal also rejected the assessee's claim for exemption. 10. Different Tribunals have taken different views in the matter with regard to exemption of the Gold Bond and, therefore, at the instance of the assessee, a question has been referred to this court as to whether the Gold Bond would still be exempted from payment of tax under the Act after the date of maturity? 11. We have heard learned advocate Shri J.P. Shah appearing for the applicant-assessee and Sr. Standing Counsel Shri M.R. Bhatt for the respondent revenue. 12. Learned advocate Shri J.P. Shah appearing for the assessee has given details with regard to the circumstances in which the country required gold. He has put much stress on the patriotism and feelings of the assessee towards his country, which prompted him to offer his gold to the country so that it can be used for procuring more foreign exchange and thereby help the country in her progress as well as in her defence. According to the learned advocate, even after the date of maturity i.e. 27.10.1980 the Gold Bond did not lose its peculiar characteristics of the bond. According to him, the assessee had not exchanged the Gold Bond for gold. As the Gold Bond had not been exchanged for gold, it cannot be said that the assessee was in fact having the gold. According to the learned advocate, there cannot be any deeming provision which would constrain the assessing authorities to presume that the assessee was having gold and not the bond. If, according to the provisions of sec. 5(1)(xvia) of the Act, the Gold Bond was exempted in respect of payment of wealth tax, then the authority had only to look at the fact whether the assessee was having the Gold Bond. If the answer was in the affirmative, that is, if it can be said that the assessee was having the Gold Bond, then the authority was bound to exempt the assessee's holding of the Gold Bond. According to him, the revenue authorities have substantially erred in considering the said Gold Bond as gold. The gold bond cannot be treated as gold for any purpose under the Act. It has been also submitted by him that the Union of India had issued several press notes and circulars so as to attract people for purchasing the Gold Bond. It has been submitted by him that one of the attractions, which was given by the Government of India in the press notes issued by it, was that the Gold Bonds were exempted from wealth tax. This being the position, and as the exemption was very much on the statute book, the assessee was right in presuming that he was entitled to the exemption if, even after the date of maturity, he did not get his Gold Bonds exchanged for gold. 13. It has been thus submitted by him that the Gold Bond retained its basic characteristic as gold bond till the same had been redeemed and, therefore, the petitioner was entitled to the exemption under the Act. 14. On the other hand, learned Sr. Central Government Standing Counsel Shri M.R. Bhatt appearing for the Union of India has submitted that the Gold Bond had peculiar characteristics. According to him, a sum of Rs. 2/- per 10 gms was to be paid to a holder of the Gold Bond every year. It was also open to the holder of the Gold Bond to assign the same to any other person. It has been submitted by him that these two important characteristics of the Gold Bond ceased to have effect after its date of maturity. In other words, it was not open to a bond holder to transfer or assign the bond to another person after 27.10.1980. Moreover, a return of Rs. 2 per 10 gms., which a bond-holder was getting, had also ceased with effect from 27.10.1980. 15. According to the learned Standing Counsel, the Gold Bond lost these two important characteristics with effect from 27.10.1980 and, therefore, the Gold Bond had lost its peculiar or typical characteristics after 27.10.80. As the bond lost these two important characteristics after 27.10.1980, it cannot be said that the Gold Bond had retained the same characteristics and, therefore, no exemption can be granted under the Act in respect of the Gold Bond after 27.10.1980. 16. It has been submitted by him that the Government was ready and willing to fulfill its obligations of giving gold in exchange of the Gold Bond. According to him, it was for the assessee to do the necessary formalities for getting the gold back, but the assessee, with some oblique motive, did not get his gold back and retained the Gold Bond so that he can avail the exemption under the provisions of the Act even after 27.10.1980. 17. According to the learned Standing Counsel, the intention of the Government was never to give exemption in respect of the Gold Bond after the date of its maturity. Thus, it has been submitted by him that the Gold Bond had lost its important characteristics of assignability and getting return @ Rs. 2/- per 10 gms. after 27.10.1980 and, therefore, the Gold Bond could not have been treated as Gold Bond but, it should be treated as a piece of paper representing a right to get gold back from the Government and it should be treated at par with gold. 18. It has been, thus, submitted by him that after the date of maturity, the Gold Bond cannot attract exemption provided u/s 5(1)(xvia) of the Act. 19. We have heard the learned Counsel at length and have also considered the judgments cited by them. Upon hearing the learned advocates and perusal of the law laid down in the judgments referred to by the learned advocates, the following factual position emerges : 20. Section 5(1)(xvia) of the Act was enacted as under with effect from 13.12.1962 by Taxation Laws (Amendment) Act, 1962 : "To exempt 6 1/2% Gold Bonds, 1977." 21. Subsequently, by the Finance (No. 2) Act, 1965, with effect from 1.4.1965, 7% Gold Bonds, 1980 were added in the said provision and thereafter under Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1965, with effect from 4.12.1965, National Defence Gold Bonds, 1980 were further included in the said clause. Thus, National Defence Gold Bonds, 1980, with which we are concerned, were exempted from payment of wealth tax with effect from 4.12.1965. The said exemption in respect of National Defence Gold Bonds, 1980 was very much on the statute book for the period with which we are concerned. 22. Thus, it cannot be disputed that National Defence Gold Bonds, 1980 were exempted in respect of wealth tax for the Assessment Years 1981-82 to 1983-84. 23. In the instant case we are concerned with Assessment Years 1981-82 to 1983-84 when National Defence Gold Bonds, 1980 were exempted from wealth tax. Now, the question is whether the bond in question would cease to be National Defence Gold Bond after 27.10.1980, the date on which the said bond became mature for exchange. 24. According to learned Sr. Standing Counsel Shri M.R. Bhatt, after 27.10.80, the bond lost its two important characteristics, namely, assignability and annual return. After 27.10.1980, the bond did not remain assignable and the Government was not liable to pay a sum of Rs. 2 per 10 gms. p.a. to the holder of the Bond. Learned Sr. Standing Counsel has therefore submitted that if the two important characteristics of the Gold Bond had come to an end on 27.10.1980, the Gold Bond should be given different treatment thereafter. It means that the Gold Bond had lost its original characteristics and, therefore, the Gold Bond should not be treated in the sense in which they had been exempted under the provisions of the Act. 25. We are not in agreement with the submission made by the learned Sr. Standing Counsel. It is immaterial whether the Government had continued to give any return to the Gold Bond holders or whether the Gold Bond could have been assigned with or without any formality. In the matter of exemption it would not only be unjust and improper but it would be against the settled principles of statutory interpretation to deprive an assessee of the exemption, which he is entitled to. As stated hereinabove, we firmly believe that simply because of change in two minor characteristics of the Gold Bond, the Gold Bond would not lose its basic characteristic as it still remained a Gold Bond till the government fulfilled its obligation of giving gold in exchange thereof. 26. What is important is whether the Gold Bond remained Gold Bond in the hands of the assessee even after 27.10.1980. If its nomenclature has not been changed and if it remained as it was in the past, and if even the provision with regard to the exemption remained on the statute book till 31.3.1993, the question is whether the revenue can be permitted to say that the Gold Bond had lost its important characteristics and, therefore, it did not remain National Defence Gold Bond, 1980 after its date of maturity. Simply because some of the characteristics had been changed, in our opinion, the basic characteristic of the Gold Bond would still remain. 27. Thus, we have to come to a conclusion that there was no change even after 27.10.1980 so far as the exemption in respect of the Gold Bond is concerned and the Gold Bond remained as it was even after its date of maturity and the exemption given to it in respect of payment of wealth tax continued. Looking to the fact that sec. 5(1)(xvia) continued to give exemption to the Gold Bond, one can believe that intention of the legislature was to give benefit to its holder in respect of payment of wealth tax. Had there been no such intention, there was no purpose in continuing the exemption in clause 5(1)(xvia) even after 27.10.1980. One cannot presume that the legislature did not know the fact that the Gold Bonds were to mature on 27.10.1980. It is also pertinent to note that while exempting the Gold Bonds in respect of payment of wealth tax under the Act, no provision was incorporated that the bonds would be subject to the exemption only till its date of maturity. Even after the date of maturity when the statute continued the provision with regard to the exemption, we believe that the intention of the legislature was to give exemption in respect of payment of wealth tax to the holders of the Gold Bond. 28. In the course of the arguments, learned Sr. Standing Counsel Shri Bhatt had argued that the provisions with regard to exemption under tax statute should be construed strictly. We are in agreement with the submission made by the learned advocate. One should however not forget the fact that first of all the law is to be interpreted as it is. If we interpret the law as it is, it is clear that the exemption given in respect of the Gold Bonds continued on the statute with effect from 24.12.65 till 31.3.1993. Thus, the legislature wanted to give exemption to the holder of the Gold Bonds in respect of the Gold Bonds till 31.3.1993. We are concerned with Assessment Years 1981-82 to 1983-84 and all these assessment years have been incorporated in the period during which the exemption was in force. 29. In the course of the arguments learned advocate Shri J.P. Shah had referred to some judgments and dictionaries to show meaning of the term "bond". He has made an effort to show that in the instant case the term "bond" would mean that the Government was bound to give quantity of gold specified in the bond to the holder of the Gold Bond. According to him, till the said obligation on the part of the Government is fulfilled, the Government was bound by the said obligation and, therefore, it cannot be said that the bond was not having its basic characteristic. 30. In our opinion, till the obligation with regard to giving gold in exchange of the bond is not fulfilled by the Union of India, the Gold Bond would continue to remain Gold Bond even if the liability in respect of payment at the rate of Rs. 2/- for 10 gms. of gold comes to an end on a particular date. Simply because the government was not bound to pay the said amount, which was in the nature of interest to the bond-holder, it cannot be said that the bond had lost its basic characteristic. Even the assignability cannot be treated as a basic characteristic of the gold bond as submitted by Shri Bhatt for the revenue. What was important was fulfillment of the main obligation by the government. Till gold was given to the bond holder in exchange of the bond, the Gold Bond retained its important characteristic of a Gold Bond. It may incidentally be stated that the assignability and payment of Rs. 2/- p.a. for every 10 gms. of gold were only additional attractions for the purchase of the Gold Bond. 31. It is also pertinent to note that for the purpose of calculation of capital gains, by virtue of a notification dated 22.9.1980, issued by the government, it had been clarified that the market value of the Gold Bond on the date of its redemption was to be taken into account. It is worth noting that the value of the Gold Bond as on 27.10.1980 was not to be considered for the purpose of calculation of capital gains. This would impliedly mean that the Gold Bond continued to remain in the same form till the date of its redemption and not till the date of its maturity. If this is the position, in our opinion, the revenue is not justified in not considering the bond as Gold Bond for other purposes. 32. There is another important fact with regard to the exemption granted under the Act to the Gold Bond. Had the legislature thought of giving exemption in respect of the Gold Bond under the Act for a limited period, i.e., till the date of its maturity, in sec. 5(1)(xvia) the legislature would have mentioned the date till which the exemption in respect of the Gold Bond was to be granted or the legislature would have withdrawn the exemption by deleting the words "and National Defence Gold Bonds, 1980" from sec. 5(1)(xvia) with effect from 27.10.1980. There was nothing which prevented the legislature from deleting the aforestated words after the date when the Gold Bond had become mature for exchange of gold. If the legislature did not think it proper to withdraw the exemption given under sec. 5(1)(xvia), in our opinion, the revenue is not justified in not granting the exemption as claimed by the assessee. 33. Incidentally, the learned Sr. Standing Counsel for the revenue had also submitted that such an interpretation of the exemption clause would be discriminatory in nature. He had submitted that if one Mr. A gets his gold bond redeemed on 27.10.1980, he would not be entitled to any exemption in respect of the gold, which he received from the government on that day, whereas if Mr. B does not surrender the Gold Bond, and keeps it beyond the period of maturity, he would be exempted from paying tax in respect of the Gold Bond after 27.10.1980 and till the said Gold Bond is redeemed. He had submitted that such a position would give discriminatory treatment to the citizens and, therefore, such an interpretation should not be made. We are not in agreement with the submission made by the learned Sr. Standing Counsel for the reason that upon getting the Gold Bond exchanged, the concerned assessee would not be having the Gold Bond, but he would be having only gold, and there is no exemption in respect of gold under sec. 5(1)(xvia) of the Act. If a person decides not to retain the Gold Bond with him, he cannot expect something which he receives in lieu of the bond as exempted under the Act. In our opinion, the said argument is not sound for the reason that it was also open to a holder of the Gold Bond to assign the gold bond for consideration even before the date of maturity, i.e., 27.10.1980. If Mr. A transfers or assigns his gold bond to someone for consideration received in cash before 27.10.1980 or in 1975, he cannot claim that the amount of cash received by him would be subject to exemption because that amount was received in exchange of the Gold Bond. So as to have exemption under the Act, it was obligatory on