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TMI Blog1982 (5) TMI 125X X X X Extracts X X X X X X X X Extracts X X X X ..... th the State Bank of India on 18-8-1978, and earned between the period 18-8-1978 till 31-3-1979 Rs. 8,876 by way of interest. The assessee claimed for the assessment year 1979-80 that only 60/160th of Rs. 8,876 was includible in his total income as per the provision of section 64(1)(iv) of the Income-tax Act, 1961 ('the Act') and accordingly included Rs. 3,328 in his return. The ITO, however, was of the opinion that the entire interest was includible in the hands of the assessee under section 64(1)(iv). The assessee claimed that to the extent of the gift amount of Rs. 60,000 alone the interest was includible under section 64(1)(iv) as the interest arising directly or indirectly from the asset transferred to the wife and not on the excess am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessment year 1979-80. 2. Again, the assessee claimed that the interest attributable to Rs. 60,000 alone should be included in the assessment of the assessee for the assessment year 1980-81 and the balance should be excluded. Relying upon his own reasonings for the assessment year 1979-80, the ITO included the entire amount of Rs. 20,500 in the hands of the assessee. When the matter reached the AAC, on appeal, he following his earlier order referred to above excluded the above interest relatable to the surplus amount of Rs. 1 lakh and directed the ITO to modify the assessment accordingly. It was against this order of the AAC that the present appeal has been filed by the revenue. 3. The learned departmental representative, Shri J.G. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transferred asset may be treated as asset not transferred by the husband to the wife so that such income is not within the reach of section 64. The position of the sum of Rs. 1 lakh in this case was not in the nature of such an income derived out of income earned out of the asset transferred by the individual. Therefore, there is misapplication of the principle laid down by the Supreme Court and for this reason, he suggested that the view taken by the AAC must be reversed. 4. On the other hand, the learned counsel for the assessee, Shri Philip George, by taking us through the decision of the Bombay High Court in the case of Sevantilal Maneklal Sheth v. CIT [1965] 57 ITR 45, which was later approved by the Supreme Court and now relied upo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciple of law laid down by the Supreme Court, the principle of law as laid down by the Bombay High Court in the very same case, which was approved by the Supreme Court, supports the assessee's case and as a consequence the order of the AAC must be upheld. 5. We have carefully gone through the submission and we are inclined to agree with the submissions made on behalf of the assessee. The decision rendered by the Supreme Court was on an appeal arising from the decision of the Bombay High Court in the case of Sevantilal. The facts in the case were : a person made a gift to his wife, of shares in a limited company, which were worth Rs. 69,730 at the time of the gift. The wife sold the shares subsequently for Rs. 1,54,800 making a capital gain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st by the revenue. The question before the Supreme Court was only whether in computing the total income of the assessee, capital gains had been properly included under the provisions of section 16(3)(a)(iii). Answering this question, the Supreme Court held that since 'capital gains' also is included in the definition of 'income', that amount was includible under section 16(3)(a)(iii). In arriving at this conclusion, the Supreme Court made the observation that there is no reason why a restricted interpretation should be placed on the provisions of section 16(3)(a)(iii), particularly when the object of the section was 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attributable to the capital gains of Rs. 1 lakh or as the AAC put it as surplus, is not available for inclusion under the provisions of section 64(1)(iv). 7. A question may arise at this stage whether the surplus of Rs. 1 lakh has been treated as income either by the assessee or by the department and whether that issue had become final, in order that the rule as propounded by the Bombay High Court and as applied by several other High Courts is held applicable in this case. At the relevant time there was a provision in the Act which stated that if the sale proceeds to the extent of capital gains is invested in fixed deposits, the capital gains to that extent would be exempt from tax. Taking advantage of this provision, we are told, the su ..... X X X X Extracts X X X X X X X X Extracts X X X X
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