1971 (8) TMI 65 - HC - Income Tax

In section 2(47) transfer in relation to capital asset has been defined. It includes the sale exchange or relinquishment of the asset or the extinguishment of any rights therein or the compulsory acquisition thereof under any law. And since transfer is independent of any other word in section 12B(1) preceding it and is of the widest import we cannot accept the alternative argument of Mr. Pal that transfer in section 12B(1) involves a bilateral transaction. Our answer to the question in this reference is in the affirmative and in favour of the department.

Summary

Issues Involved:
1. Applicability of Section 12B of the Indian Income-tax Act, 1922, to the acquisition of property under the Madras Electricity Supply Undertakings (Acquisition) Act, 1954.
2. Interpretation of the term "transfer" in Section 12B(1) of the Indian Income-tax Act, 1922.
3. Whether the doctrine of ejusdem generis applies to the term "transfer" in Section 12B(1).

Issue-wise Detailed Analysis:

1. Applicability of Section 12B of the Indian Income-tax Act, 1922:
The primary issue was whether the acquisition of the assessee's property under the Madras Electricity Supply Undertakings (Acquisition) Act, 1954, falls within the scope of Section 12B of the Indian Income-tax Act, 1922, thereby making any surplus arising from such acquisition taxable as capital gains. The court held that the acquisition did fall within the scope of Section 12B, and the surplus amount received as compensation was subject to capital gains tax.

2. Interpretation of the term "transfer" in Section 12B(1):
The court examined whether the term "transfer" in Section 12B(1) includes involuntary transfers such as compulsory acquisitions by the government. The assessee argued that "transfer" should be understood in the context of the preceding terms "sale," "exchange," and "relinquishment," all of which imply voluntary actions. The court, however, concluded that the term "transfer" should be given its plain and natural meaning, which includes both voluntary and involuntary transfers. The court cited various judgments to support its interpretation, including the decision in Commissioner of Income-tax v. Chunilal Probhudas & Company and Provident Investment Co. Ltd. v. Commissioner of Income-tax.

3. Doctrine of ejusdem generis:
The assessee contended that the doctrine of ejusdem generis should apply, meaning that the general term "transfer" should be interpreted in the context of the specific preceding terms ("sale," "exchange," "relinquishment"), which all imply voluntary actions. The court rejected this argument, stating that the term "transfer" in Section 12B(1) is independent of the preceding terms and should be given its broadest possible meaning. The court also referred to the legislative history and amendments to Section 12B to support its conclusion that compulsory acquisitions were intended to be included within the scope of "transfer."

Conclusion:
The court answered the reference question in the affirmative, holding that the acquisition under the Madras Electricity Supply Undertakings (Acquisition) Act, 1954, came within the scope of Section 12B of the Indian Income-tax Act, 1922. Consequently, any surplus arising from such acquisition is taxable as capital gains. The assessee was ordered to pay the costs of the reference.