TMI Blog1970 (10) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... in the meaning of section 45 read with section 2(47) of the Act. The assessee held, in the share capital of the Uganda company, 192 shares of the aggregate face value of Shillings 1,92,000, that is Rs. 1,28,000. The Uganda company went into voluntary liquidation by a special resolution dated 10th July, 1961, and in the liquidation, the assets of the Uganda company were sold by the liquidator and after payment of debts and liabilities, the final account in respect of liquidation was drawn up by the liquidator on 31st August, 1961. The assessee, according to the statement of the case, became entitled to receive shillings 4,68,489 at the rate of shillings 2,440.0492 per share as and by way of return of capital in respect of 192 shares held by him, the equivalent in terms of Indian currency being Rs. 3,12,326. The assessee thus obtained an excess of Rs. 1,84,326 over the aggregate face value of the said 192 shares. The revenue sought to treat the amount of Rs. 1,84,326 as capital gain chargeable to tax under section 45 on the ground that it was profit or gain arising from relinquishment of a capital asset or the extiniguishment of any rights in it within the meaning of section 2(47). B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation, such distribution shall not be regarded as a transfer by the company for the purpose of section 45. Section 46(2) is another charging provision but that is applicable only in a certain specified situation. It deals with the case where a shareholder, on the liquidation of a company, receives any money or other assets from the company and provides that in such a case : " he shall be chargeable to income-tax under the head 'capita lgains', in respect of the money so received or the market value of the other assets on the date of distriburtion, as reduced by the amount assessed as dividend within the meaning of sub-clause (c) of clause (22) of section 2 and the sum so arrived at shall be deemed to be the full value of the consideration for the purpose of section 48. " Now on a superficial reading, this provision would seem to cover the present case, for here also, the assessee received shillings 4,68,489, that is, Rs. 3,12,326 as a shareholder of the Uganda company on its liquidation but if we look at the definition of "company" in section 2(17), it becomes clear that this provision can have no application in the present case. The Uganda company was admittedly not a company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, becomes necessary to, inquire what is the legal nature of a share. The word "share", as pointed out by Gower in his book on Modern Company Law, third edition, at page 344 : " has become something of a misnomer for shareholders no longer share any property in common ; at the most they share certain rights in respect of dividends, return of capital on a winding up, voting, and the like. " Though for the purposes of the Sale of Goods Act a share is included in the definition of "goods" and it is regarded as movable property so far as the law in India is concerned, it is in its true nature what the English law calls, a chose-in-action which entitles its owner to certain rights in action as distinguished from rights in possession. What is the broad spectrum of those rights in action is clear from the following passage from the judgment of Mukherjee J. in Chiranjitlal Chaudhari v. Union of India where the learned judge says : " His interest (that is, interest of shareholder) is represented by the share he holds and the share is a movable property according to the Indian Companies Act. Ordinarily, he is entitled to enjoy the income arising from the shares in the shape of divi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " which occurs in the charging provision enacted in section 45. It is an inclusive definition. It says that "transfer", in relation to a capital asset, shall include the sale, exchange or relinquishment of the asset or the extinguishment of any rights therein. Now there can be no doubt that the inclusive definition is intended to enlarge the meaning and connotation of the word "transfer". If we look at section 12B of the old Act it sought to charge to tax profits or gains arising from the sale, exchange, relinquishment or transfer of a capital asset. There was no definition of the word "transfer" in the old Act and it was, therefore, confined to its ordinary natural signification. But when the present Act was enacted, the legislature adopted a slightly different legislative formula. It provided in the charging section that any profits or gains arising from the transfer of a capital asset shall be chargeable to income-tax and proceeded to give an inclusive definition of the word "transfer" as used in the charging section. Now the word "include" is ordinarily used "in order to enlarge the meaning of words or phrases occurring in the body of the statute ; and, when it is so used, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was sought to be supported by reference to certain observations made in Mr. Palkhivala's book on Income, tax, sixth edition, at page 491, where the learned author says : " ...... but the better view is that it does not involve 'extinguishment of any rights therein' which expression seems to indicate the continued existence of the capital asset over which the rights of its holder are extinguished". We do not think this argument is well-founded. It seeks to read in the word "therein" much more than what it signifies. The word "therein" undoubtedly refers to the capital asset mentioned earlier in the definition and what the expression "extinguishment of any rights therein" contemplates is extinguishment of any rights in the capital asset. But the definition nowhere indicates that where the capital asset consists of incorporeal property such as a chose-in-action and the bundle of rights, which constitutes such incorporeal property is extinguished so that such incorporeal property ceases to exist, the expression "extinguishment of any rights therein" should have no application. The words used by the legislature : are "extinguishment of any rights" and the word "any" is a word which ordi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... how that the particular provision ought not to be construed as if it stood alone and apart from the rest of the statute. Every clause of a statute should be construed with reference to the context and other clauses of the statute so as, as far as possible, to make a consistent enactment of the whole statute. Bearing in mind this well-known rule of interpretation, let us examine the scheme of taxation of capital gains of which section 45 forms a vital provision. Section 45 provides that any profits or gains arising from the transfer of a capital asset in the previous year shall be chargeable to income-tax under the head "capital gains". But what is the meaning of the words "profits or gains arising from the transfer of a capital asset ?" How are they to be computed ? Section 48 says that the income chargeable to tax as "capital gains" shall be computed by deducting from the " full value of the consideration received or accruing as a result of the transfer of the capital asset" the following amounts, namely : (i) expenditure incurred wholly and exclusively in connection with such transfer ; and (ii) the cost of acquisition of the capital asset and the cost of any improvement thereto. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explained. The view canvassed on behalf of the revenue would render section 46(2) superfluous and meaningless. If a case where a shareholder on liquidation of a company receives any money or other assets of the company is already covered by section 45 read with section 2(47) as contended on behalf of the revenue, there is no reason why the legislature should have indulged in the futile exercise of enactment of section 46(2). It is well-settled that a construction which imputes to the legislature tautology or superfluity in the use of language must, as far as possible, be avoided. The court should always prefer a construction which will give some meaning and effect to the words used by the legislature rather than that which will reduce it to futility. It is only by interpreting section 45 read with section 2(47) in the manner in which we have done that we can give meaning and effect to section 46(2). The learned Advocate-General faced with this difficulty sought to extricate the revenue out of it by saying that section 46(2) was not intended to be a charging provision bringing to tax profits or gains which would otherwise have been outside the net of taxation cast by section 45 but ..... X X X X Extracts X X X X X X X X Extracts X X X X
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