Page 356 - DCOM301_INCOME_TAX_LAWS_I

Unit 12: Income under the Head Capital Gains

Notes
The learned departmental representative on the other hand pleaded that the concessional
rate is applicable only for income in its normal sense of the term like dividend interest, on
securities and long term capital gains and not for short term capital gains for the simple
reason that the short-term capital gain represents “hot money” and the purpose of the
Legislation is to discourage the out-flow of such hot money coming from abroad.
Countering the argument of the learned counsel for the assessee that in case of ambiguity
in a provision an interpretation favourable to the assessee is to be given, the learned dept.
representative pointed out that such a beneficial interpretation has to be given only there
is an ambiguity but an ambiguity cannot be presumed and when on a plain reading of the
statutory provision the Court is of the opinion that one and only one interpretation is
reasonably possible which is against the assessee, it cannot give an erroneous interpretation
in favour of the assessee by resorting to the principle of beneficial construction. In this
context he relied upon the decision of the jurisdictional High Court in the case of Oudh
Sugar Mills Ltd. v. CIT [1996] 222 ITR 726/89 Taxman 590 (Bom.).
We are of the view that we have to uphold the contention of the learned dept. representative
even though the decision of the Tribunal of Delhi Bench cited supra is in favour of the
assessee. We have given our anxious consideration to the issue on hand. We are also aware
that the Tribunal should be very wary of coming to a conclusion different from the one
arrived at earlier whether by the same Bench or by a different Bench. The main plank of
the decision of the Delhi Bench Tribunal is the decision of the Apex Court in the case of
Sevantilal Maneklal Sheth (supra) in which it was held that the surplus realised on the sale
of an asset is also income. So, it is necessary to consider this decision in detail and to
consider whether this decision leads to the construction sought to be placed by the
appellant on the scope of section 115E. This decision of the Apex Court was given in the
context of interpreting the provisions of section 16(3)(a)(iii) of the Income-tax Act, 1922
which corresponds to section 64(iv) of the Income-tax Act, 1961. The issue considered was
whether when assets were transferred by husband to wife the capital gains derived by
wife by selling the assets could be construed as income arising directly or indirectly from
assets transferred so as to attract the clubbing provisions of section 16(3)(a)(iii) of the 1922
Act. The relevant portion of the head-note of this decision reads as follows:
“The inclusion of “capital gains” in the definition of “income” was for the first time
enacted in 1947. It is true that at the time when section 16(3)(a)(iii) of the Indian Income-tax
Act, 1922 was enacted, the definition of “income” did not include “capital gains” but
capital gains having been brought within the meaning of “income” in section 2(6C) the
expression “income” as used in section 16(3)(a)(iii) must be construed according to the
amended definition of the word and would, therefore, include capital gains. There is
nothing in the context or language of section 16(3)(a)(iii) of the Act to suggest that capital
gains are excluded from its scope.
Held, accordingly, that the capital gains derived by the wife of the assessee by the sale of
assets transferred to her by him had to be included in the total income of the assessee
under section 16(3)(a)(iii) of the Indian Income-tax Act, 1922.
There is no reason why a restricted interpretation should be given to the provisions of
section 16(3)(a)(iii). The object of the section is to prevent avoidance of tax or reducing the
incidence of tax on the part of the assessee by transfer of his assets to his wife or minor
child. It is a sound rule of interpretation that statute should be so constructed as to prevent
the mischief and to advance the remedy according to the true intention of the makers of
the statute.”

Contd...

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