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TMI Blog1967 (11) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... ese transferred shares on the date of the transfer was Rs. 69,730. Subsequent to the transfer the company converted the preference shares into ordinary shares giving the shareholders eight ordinary shares for each preference share with the result that on December 31, 1954, Bai Laxmibai held in all 2,424 ordinary shares of the mills. Out of these 2,424 shares, Bai Laxmibai sold 2,400 shares on August 1, 1956, for the sum of Rs. 1,54,800, resulting in capital gain of Rs. 70,860, as computed under section 12B of the Income-tax Act. The whole amount realised by the sale of the shares was deposited by Bai Laxmibai with Messrs. A. H. Bhivandiwalla and Co., in which Maneklal as well as his son, Seventilal, happened to be partners. The amount depos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the amount of Rs. 9,288 in the total taxable income of Maneklal. Appeals against all these three assessment orders were filed before the Appellate Assistant Commissioner. In the appeal against the first assessment order for the assessment year 1957-58 the Appellate Assistant Commissioner agreed with the view taken by the Income-tax Officer and dismissed the appeal. In the other two appeals, he partly allowed the appeals taking the view that only that part of the interest which was attributable to the monetary value of the shares covered by the shares at the time of the gift was liable to be included in the total income of Maneklal in accordance with the provisions of section 16(3)(a)(iii) and the balance could not be included under the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 9,288, was held to be liable to be included in the total income of Maneklal in each of those two years. Thereafter, at the instance of the assessee, the Appellate Tribunal stated a case to the High Court on the following questions of law : " 1. Whether, in computing the total income of Maneklal for the assessment year 1957-58, the sum of Rs. 70,860 has been properly included therein in accordance with the provisions of section 16(3)(a)(iii) of the Income-tax Act, 1922 ? 2. Whether, in computing the total income of Maneklal for the assessment year 1958-59, the sum of Rs. 5,104 has been properly included therein in accordance with the provisions of section 16(3)(a)(iii) of the Income-tax Act, 1922 ? 3. Whether, in computing the tot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1922, states : ' Income ' includes . . . (vi) any capital gain chargeable under section 12B ;. . . " Section 12B of the Income-tax Act enacts ; " (1) The tax shall be payable by an assessee under the head ' Capital gains ' in respect of any profits or gains arising from the sale, exchange, relinquishment or transfer of a capital asset effected after the 31st day of March, 1956, and such profits and gains shall be deemed to be income of the previous year in which the sale, exchange, relinquishment or transfer took place : . . . " With regard to the first question, Mr. Mehta put forward the argument that what comes within the ambit of section 16(3)(a)(iii) is the income from the transferred assets, which is different from the profi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich has sprung up or arisen from the asset. There is hence no warrant for the argument that the capital gain is not income arising from the assets, but it is income, which arises from a source which is different from the asset itself. It was argued, in the second place, that section 16(3)(a)(iii) was enacted in 1937 when the word " income " did not include " capital gains " and income from property was understood to be income falling under that head in section 6 of the Act. 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) was enacted, the definition of " income " did not include " capital gains " but capital gains having been b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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