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Income Tax Laws – I

Notes VI-A shall be allowed as if the gross total income as so reduced were the gross total
income of the assessee.”
Section 115E reads as follows:

“115E. (1) Where the total income of an assessee, being a non-resident Indian, consists only
of investment income or income by way of long-term capital gains or both, the tax payable
by him on his total income shall be the amount of income-tax calculated on such total
income at the rate of twenty per cent of such income.
(2) Where the total income of an assessee being a non-resident Indian includes any income
of the nature referred to in sub-section (1), the tax payable by him on his total income shall
be:

(i) the income-tax payable by him in accordance with the provisions of sub-section (1) on
income of the nature referred to in that sub-section included in the total income; plus
(ii) the amount of income-tax chargeable on the total income as reduced by the amount of
income of the nature referred to in sub-section (1), had the total income so reduced been
his total income.”

The assessee claimed that the short-term capital gain of ` 1,00,250 claimed by the assessee
is of the nature of investment income as defined under section 115C and so accordingly,
should be taxed at the concessional tax rate of 20% stipulated in section 115E. The Assessing
Officer rejected the claim on the ground that the concessional tax rate of 20% stipulated in
section 115E applied only to long-term capital gains and investment income which
according to the Assessing Officer did not include short term capital gains. Before the
CIT(A) the assessee relied in support of its claim on the decision of the Tribunal, Delhi
Bench in the case of Smt. Trishla Jain v. Dy. CIT [1990] 34 ITD 523. In this decision the
Tribunal took the view that the surplus realised on the sale of capital assets is also income
derived from the assets. For this view, the Tribunal relied upon the decision of the Apex
Court in the case of Sevantilal Maneklal Sheth v. CIT [1968] 68 ITR 503 (SC) and also the
decision of the Hon’ble Bombay High Court in the case of Manubhai A. Sheth v. N. D.
Nirgudkar Second ITO [1981] 128 ITR 87. The CIT(A) rejected the claim on the ground that
the specific reference to the long-capital gains in section 115E precluded, by implication,
the application of the concessional tax rate to short-term capital gains. In support of his
view that the “investment income” referred to in section 115E did not include short-term
capital gains as contended by the assessee, he relied upon the following decisions:
(i) CIT v. B. S. Rajendrappa [1986] 162 ITR 666/27 Taxman 460 (Kar.);
(ii) CIT v. T. K. Sarala Devi [1987] 167 ITR 136/32 Taxman 451 (Ker.);
(iii) Ambalal Maganlal v. Union of India [1975] 98 ITR 237 (Guj.).

The above decisions take a view contrary to the view taken by the Hon’ble Bombay High
Court in the case of Manubhai A. Sheth (supra) and held that when a capital asset is sold
what is realised is capital receipt assessable to capital gains and not a revenue receipt.
Before us the learned counsel for the assessee relied upon the decision of the Delhi Bench
of the Tribunal cited supra and contended that the expression “investment income” used
in section 115E includes short-term capital gains as the income derived on a sale of asset is
also income and in this context he has also relied upon the ratio of the decision of the
Bombay High Court in the case of Manubhai A. Sheth (supra) and also the decision of the
Apex Court in the case of Sevantilal Maneklal Seth cited supra, on which the Delhi Bench
of the Tribunal itself has relied.

Contd...

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