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TMI Blog1965 (2) TMI 129X X X X Extracts X X X X X X X X Extracts X X X X ..... capital gain of ₹ 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 M/s. A.H. Bhivandiwalla Co., in which Maneklal as well as his son, the present applicant, happened to be partners. The amount deposited by Bai Laxmibai fetched a yearly interest of ₹ 9,288. In the assessment of Maneklal for the assessment year 1957-58 the Income-tax Offcer included the amount of ₹ 70,860, which was the profit made by Bai Laxmibai on the sale of the shares, as income of Maneklal under section 16(3)(a)( iii) of the Indian Income-tax Act. Similarly, in the assessment of Maneklal for the assessment years 1958-59 and 1959-60 he included in each year the amount of ₹ 9,288 which was the interest earned by Bai Laxmibai on the deposit of the sale proceeds with M/s. Bhivandiwalla Co. as the income of Maneklal under section 16(3)(a)(iii ). According to the Income-tax Officer the gain, which had resulted from the sale of the shares was the income of the wife of the assessee, which arose directly or indirectly from the assets transferred by the assessee to his wife otherwise than for ade ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inst the orders of the Appellate Assistant Commissioner for the years 1958-59 and 1959-60 in so far as they allowed exemption in respect of ₹ 4,183 out of the total amount of ₹ 9,288 for each year. The Income-tax Appellate Tribunal dismissed the assessee's appeal against the order of assessment passed by the Income-tax Officer for the assessment year 1957-58 and confirmed in appeal by the Appellate Assistant Commissioner. The department's appeals arising out of the assessment orders for the assessment years 1958-59 and 1959-60 were allowed by the Tribunal and the assessee's appeal arising out of the assessment order for the assessment year 1959-60 was dismissed. According to these decisions of the Appellate Tribunal the result was that for the assessment year 1957-58 the decision of the departmental authorities that the amount of ₹ 70,860, which was the profit or gain on the sale of the shares by Bai Laxmibai was liable to be included in the total income of Maneklal was upheld and for the later two years the entire amount of interest, viz., ₹ 9,288, was held to be liable to be included in the total income of Maneklal in each of those two years. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed is whether the said surplus constitutes the income of the wife of Maneklal, which has arisen directly or indirectly from the assets transferred by Maneklal to his wife otherwise than for adequate consideration or in connection with an agreement to live apart. The shares, on the sale of which this surplus has arisen, were admittedly assets transferred by Maneklal to his wife otherwise than for adequate consideration or in connection with an agreement to live apart. What is required to be considered is whether the surplus is income of the wife, which has arisen directly or indirectly from the transferred assets. The argument of Mr. Mehta, learned counsel for the assessee, is that what comes within the ambit of section 16(3)(a)(iii ) is the income from the transferred assets, which is different from the profit or gain arising from the sale of the transferred assets, or, in other words, the capital gains from the transferred assets. Income as defined in section 2(6C) of the Income-tax Act includes capital gains chargeable under section 12B, and capital gains chargeable under section 12B are profits or gains arising, from the sale, exchange, relinquishment or transfer of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to the learned counsel, is the reason why different heads have been created for income from property and capital gains , the first one to indicate the property as the source of the income and the second to emphasise that not the property but the sale of the property is the source of the income. Mr. Mehta's argument, therefore, is that what comes within the ambit of section 16(3)(a)( iii) is income from the asset, i.e., the income which the asset produces, while it continues to remain in the hands of the assessee and does not include the gain, which the assessee makes by selling the asset and parting with possession of it. We are not impressed by the argument of the learned counsel. Income under section 2(6C) includes capital gains chargeable under section 12B. Capital gains chargeable under section 12B is profits or gains arising from the sale of a capital asset. The profits or gains which arise from the sale of the asset would arise or spring from the asset, although the operation by which the profits or gains is made to arise out of the asset is the operation of the sale. If the asset is employed say by way of investment and produces income, the income arises or sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m property and income from the sale of the assets. We do not dispute that there is distinction because while in one case the income is obtained with the asset continuing with the assessee as in the case of an investment producing interest, while in the other case the income is in the nature of gain which the assessee has obtained by parting with possession of the asset for all future time. We do not, however, think that the decision referred to by Mr. Mehta is an authority for the proposition that gain from the sale of the assets could not be income from the asset. That case was primarily concerned with the question as to what was the true meaning and interpretation of the words individual and such individual occurring in section 16(3) in connection with the inclusion of certain incomes under the provisions of that section in the total income of the assessee. We find, however, on the other hand, in Navinchandra Mafatlal v. Commissioner of Income-tax [1954] 26 ITR 758 ; [1955] 1 SCR 829, that the Supreme Court has held that capital gains, which has been included within the meaning of the word income in section 2(6C) of the Indian Income-tax Act, is income within the meaning of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich amounted to ₹ 1,54,800 and this amount in cash was held by Bai Laxmibai as the assets held by her in another form. There was another way, however, of looking at the matter, viz., that the sale proceeds which Bai Laxmibai realised on the sale of the assets gave her back the value of the assets and a certain gain over that value. In other words, the amount of ₹ 1,54,800 received by Bai Laxmibai on the sale of the shares held by her, gave her value of the assets, viz., ₹ 69,730, and a gain, viz. , ₹ 70,860. The department for the year 1957-58 chose to look upon it in the latter way and took the view that the assets transferred were converted into cash for their corresponding value at the date of the transfer and the rest was the income in the form of capital gains from the said assets. In other words, an amount of ₹ 69,730 represented in cash the transferred asset, while the surplus of ₹ 70,860 constituted the income. That part, which was income, it included within the total income of the husband and brought it to tax. Now, that being the basis adopted by the income-tax department, the same must obviously hold good for the subsequent years of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 69,730 at the date of the transfer. The Appellate Assistant Commissioner, who made a division of the total interest of ₹ 9,288 into two parts, viz., ₹ 4,183 and ₹ 5,105, made it on the basis that ₹ 4,183 was the part, which was attributable to the value of the assets, viz, ₹ 69,730, and the rest, viz., ₹ 5,105, attributable to the balance. This decision arrived at by the Appellate Assistant Commissioner was not thereafter questioned by either party before the Tribunal. We cannot, therefore, proceed to investigate into the figure, which is mentioned in questions Nos. 2 and 4. If in view of the decision that we are taking it is possible for the department to urge before the Tribunal when the matter goes back to it after we have answered the questions, the department may, if so advised, urge those contentions before the Tribunal and the Tribunal may consider them for what they are worth. In our opinion, therefore, questions Nos. 2 and 4 must be answered in favour of the assessee and against the department. As we have already pointed out earlier question No. 3 will be answered in the affirmative since the counsel for the assessee has n ..... X X X X Extracts X X X X X X X X Extracts X X X X
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