Page 360 - DCOM301_INCOME_TAX_LAWS_I

Unit 12: Income under the Head Capital Gains

to discourage out-flows of “hot moneys” and the scheme of the Act, particularly, concerned Notes
provisions relating to deduction of tax at source and the mode of interpretation adopted
by the Hon’ble Andhra Pradesh High Court in the case of M. Krishna Murthy (supra). We
hold that the expression “investment income” mentioned in section 115E does not include
short-term capital gains and as such, the assessee is not entitled to concessional tax rate in
respect of short-term capital gains.
In the result, the assessee’s appeal is dismissed.

Shri Vimal Gandhi, Vice-President
1. My brother, learned Accountant Member, was good enough to put up the proposed
order without signature for my consideration. In my view, a departure from the
earlier view of the ITAT Delhi Bench was not justified on mere reference to provisions
relating to deduction of “tax at source” and the issue requires consideration of
definition of ‘investment income’. Accordingly I suggested changes to my brother
on above lines. My learned brother then advised me to incorporate my suggestions
in a separate note annexed to the order. In the above background, I give my reasons
for agreeing with the proposed view of my learned brother.

2. The question whether short term capital gain is entitled to concessional rate of tax as
stipulated in section 115E has to be determined with reference to definition of
“investment income” under Chapter XII-A of the I.T. Act. The said definition is
given in clause (c) of section 115C and is as under:
“investment income” means any income derived from a foreign exchange asset;

“Long-term capital gains” is separately defined and is stated to be one which is not
arising from a short-term capital asset. The important word in the definition of
‘investment income’ is “any income derived from a foreign exchange asset”. What is
import of expression “income derived from”?
In the case of Smt. Trishla Jain (supra), the Hon’ble Members of ITAT Delhi Bench ‘E’
held that the above definition of investment income would cover short-term capital
gain. For reaching this conclusion, the learned Members took into account certain
decisions given in relation to taxability of capital gain on transfer of agriculture
land under section 45 of the I.T. Act. Certain High Courts have held that such income
is not liable to be taxed. These decisions are relevant as in the definition of
“agricultural income” given under section 2(1A) of the I.T. Act, any rent or revenue
derived from land or any income derived from such land is included in “agricultural
income”. Thus in the above decision the import of word “income derived from” was
considered. The learned Members also referred to the decision of Hon’ble Supreme
Court in the case of Sevantilal Maneklal Sheth (supra). I shall be referring to the
above decision. But before that I would like to refer to certain history of Legislation
which is relevant to appreciate the point.

3. Capital gain was not included in the definition of term “income” in the Indian
Income-tax Act, 1922 prior to amendment of section 2(6C) and insertion of new
section 12B relating to capital gains the above was done under Entry 54 in List I of
the Seventh Schedule of the Government of India Act, 1935. This entry with which
definition of “income” was challenged before the Constitutional Bench of Supreme
Court in the case of Navinchandra Mafatlal (supra). Their Lordships upheld the
validity of amendment and held that capital gains after amendment were taxable
“income”.

Contd...

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