Commissioner of Income Tax vs Oriental Containers Ltd.

Smt. Sujata Manohar, J.—The present application under s. 256(2) of the IT Act, 1961 is at the instance of the Department for directing the Tribunal to state a case and raise and refer the following two questions to us for determination. These questions are as follows :

"(1) Whether, on the facts and in the circumstances of the case the Tribunal was right in law in holding the assessee-company as company in which the public are substantially interested in spite of the fact that the provisions of s. 2(18)(b)(B)(iii) are clearly applicable to the company''s case ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in directing the Assessing Officer to exclude the profit of Rs. 5,14,000 on sale of National Defence Gold Bonds, 1980 without taking into consideration the Board''s Circular No. 415 of 14th March, 1985 wherein it has been clarified that the transaction of such a nature would attract capital gains tax ?"

As far as question No. 1 is concerned, the petition has relied upon the same facts and circumstances as were obtaining in respect of the asst. yr. 1975-76 which were considered by the Tribunal. The proceedings before the Department have proceeded on the basis that there is no change in the circumstances. The respondent has produced before us the order of the Tribunal in respect of the assessee for the asst. yr. 1975-76. The facts, which are set out there, are to the effect that the following five persons held 10,500 shares of the assessee-company :

S. D. Somani Family Group 2,160 2. B. D. Somani 1,920 3. M. K. Somani 1,920 4. Parekh Family Group 1,500 5. Venkatesh Metal Pvt. Ltd. 3,000 -------- 10,500

10,500 shares which are so held by the five persons constitute less than 60% of the total shares of the company because in order to constitute 60% the total shares required were 10,800 shares. In view of this factual position, the Tribunal held that s. 2(18)(b)(B)(iii) would not be attracted. We are informed that the proportion of share holding has not changed in respect of the assessment years in question which are before us. In view thereof, question No. 1 has no merit and no useful purpose would be served by directing the Tribunal to refer this question to us, looking to the factual position.

The second question which is sought to be raised is based on the following facts : The assessee is engaged in the manufacture and sale of tin containers and caps. The assessee had purchased on 8th August, 1980 National Defence Gold Bonds, 1980 for a sum of Rs. 24,16,000. The assessee sold the same on 17th October, 1980 for Rs. 29,30,000. The date of maturity of the Bonds was 27th October, 1980. The assessee has contended that Rs. 5,14,000 which was the excess realisation from the sale of these Gold Bonds was neither taxable as income not as capital gain. Under s. 2(14) of the IT Act, the Gold Bonds are excluded from the definition of "capital assets". Hence, the assessee contended that the excess realisation cannot be considered as capital gain. This contention was upheld by the Tribunal, which has held that the receipt of Rs. 5,14,000 was on capital account, but could not be considered as capital gain because of the exclusion of Gold Bonds from the definition of "capital assets" under s. 2(14). The present question is in respect of this finding of the Tribunal. The question refers to Board Circular No. 415 dt. 14th March, 1985. This circular merely states 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 would attract capital gains tax in respect of capital gains arising from such sale, exchange or transfer. This Circular has no application at all to the facts of the present case. Hence, the entire question is misconceived.

It was, however, urged by Mr. Jetly, learned counsel for the Department, that we should reframe the question and should raise a question as to whether this excess realisation should be taxed as income. In the first place, this is a totally different question from the question which is sought to be raised. Hence, raising such a new question now cannot be considered as reframing a question which was sought to be raised by the Department. Secondly, the Tribunal has given cogent reasons why this excess realisation of Rs. 5,14,000 cannot be considered as income. In fact, the Tribunal has said that if the Revenue claims that this is income arising to the assessee from an adventure in the nature of trade, the burden is upon the Revenue to prove that this was an adventure in the nature of trade. The Tribunal has said that there was nothing on record which would indicate that this was an adventure in the nature of trade. In view of this position and on facts also, the so called reframing of this question is not warranted.

In any event, in a similar case dealing with a single transaction for purchase and sale of Gold Bonds a Division Bench of this Court of which one of us (Mrs. Manohar, J.) was a party has held that such a solitary transaction of purchase and sale of Gold Bonds cannot be considered as giving rise to any income [ Ashok Kumar Jalan Vs. Commissioner of Income Tax, ]. Hence, the so called reframing of the second question is not warranted.

In the premises, the Rule is discharged.

No order as to costs.