9911796707
TMI Blog1972 (7) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... eemed to accrue or arise to him in India during such year, or accrues or arises to him outside India during such year. The deeming in this provision, obviously, does not have the effect of converting an income not received by him or which does not accrue or arise to him into an income deemed to have been received by him or into one which is deemed to accrue or deemed to arise to him; in other words, the deeming relates to place. It is a well-established principle of income-tax that "income-tax is a levy on income. No doubt, the Income-tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt but the substance of the matter is the income" (vide observation of the Supreme Court in Commissioner of Income-tax v. Shoorji Vallabhdas and Co.) Of course, in Commissioner of Income-tax/Excess Profits Tax v. Bhogilal Laherchand Mahajan J. has observed that the term "deemed" involves a number of concepts. By statutory fiction income which can in no sense be said to accrue at all may be considered as so accruing. Similarly, the fiction may relate to the place, the person or be in respect of the year of taxability. An ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "any profits or gains arising from the transfer of a capital asset effected in the previous year shall, . . . .be chargeable to income-tax under the head 'capital gains' and shall be deemed to be the income of the previous year in which the transfer took place." Section 48, which provides for the mode of computation of the tax and deductions, lays down that the income chargeable under the head "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. (Then the amounts to be deducted are mentioned). Section 52 of the Act, on which considerable arguments have been advanced by both sides, has to be noted. The section reads : "Consideration for transfer in cases of under-statement.--(1) Where the person who acquires a capital asset from an assessee is directly or indirectly connected with the assessee and the Income-tax Officer has reason to believe that the transfer was effected with the object of avoidance or reduction of the liability of the assessee under section 45, the full value of the consideration for the transfer shall, with the previous approval of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he language of these two sub-sections to show that the full value of the consideration for the transfer of the capital asset appearing in section 52 should be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset. If the legislature wanted to have that effect, it could have easily used the expression "the full value of the consideration received or accruing" in section 52. Since this has not been done, there is no justification for holding that the full value of the consideration, which is deemed to be the fair market value of the capital asset, in section 52 is the full value of the consideration received or accruing: if it is so held, what is being done is ignoring the expression "received or accruing" in section 48. I reiterate that what is chargeable to income-tax as "capital gains" under section 45 is only the profits or gains "arising from the transfer of a capital asset." In the case before us, the appellant has no case that the respondent received anything more than Rs. 16,500 ; the appellant has also no case that the respondent acquired, by the transfer, a right to receive anything more than this amount. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received or accruing or the profits or gains arising from the transfer. And the marginal note of section 52 is only in consonance with this interpretation. The other interpretation put forward by the appellant is not warranted by the language of section 52, nor by its marginal note. By section 47(iii) it is provided that "nothing contained in section 45 shall apply to any transfer of capital asset under a gift or will or an irrevocable trust". The term "gift" is not defined in the Income-tax Act ; but section 4(a) of the Gift-tax Act provides that "where property is transferred otherwise than for adequate consideration, the amount by which the market value of the property at the date of the transfer exceeds the value of the consideration shall be deemed to be a gift made by the transferor". Of course, this provision is only for the purposes of the Gift-tax Act. The term "gift" is defined in the Transfer of Property Act too. I am of opinion that, of the two definitions, the definition in the Gift-tax Act. in spite of its being only for the purposes of the Gift-tax Act, must be preferred when applied to the Income-tax Act. If the language of the Income-tax Act is so beyond doubt tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 147 of the Act and that a reassessment was proposed. After the petitioner filed objections (exhibit P-2) he was informed by exhibit P-3 that the escaped income proposed to be assessed consisted of the difference between a sum of Rs. 65,000 representing the fair market value of a house property within the municipal limits of Ernakulam which the petitioner had conveyed to his daughter-in-law and to his five children under a sale deed dated December 25, 1965, and Rs. 16,500, the face value of the consideration for the said document. The difference between the two amounts was sought to be treated and assessed as "capital gains". After hearing the petitioner's objections, the proposal contained in exhibit P-3 letter was implemented in exhibit P-5 order of assessment. Aggrieved by the same, the petitioner filed the writ petition which was allowed by the learned single judge. At the outset itself, I may point out that the learned judge was not justified in quashing exhibit P-5 assessment as a whole. The objection canvassed before him in the writ petition, as fairly conceded before us by counsel for the respondent, related only to the assessment to tax on "capital gains" arising from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axability." Again in Navinchandra Mafatlal's case, the Supreme Court observed: "The truth of the matter is that while income-tax legislation adopts an inclusive definition of the word 'income' the scheme of such legislation is to bring to charge only such income as falls under certain specified heads (e.g., the 5 Schedules of the English Act of 1918 and our section 6 read with the following sections) and as arises or accrues or is received or is deemed to arise or accrue or to be received as mentioned in the statute. The courts have striven to ascertain the meaning of the word 'income' in the context of this scheme." In E. D. Sassoon & Co. v. Commissioner of Income-tax after discussing the meaning of the words "accrues", "arises" and "is received", the Supreme Court observed at page 343: "It is clear therefore, that income may accrue to an assessee, without the actual receipt of the same. If the assessee acquires a right to receive the income, the income can be said to have accrued to him, though it may be received later on its being ascertained. The basic conception is that he must have acquired a right to receive the income." In the light of the above provisions of the statu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l asset shall, with the previous approval of the Inspecting Assistant Commissioner, be taken to be its fair market value on the date of its transfer." On a conspectus of the above sections, to my mind, what flows is that profits or gains "arising from the transfer of a capital asset" shall be chargeable to tax as capital gains under section 45 ; and the mode of computation provided in section 48 shall be by deducting from "the full value of the consideration received or accruing as a result of the transfer of the capital asset", certain amunts provided by the section. And section 52 enacts that in certain contingencies the full value of the consideration for the transfer shall be taken to be the fair market value of the capital asset [sub-section (1)] and in certain others, the full value of the consideration for such capital asset shall be taken to be its fair market value. I would straight-away ask : for what purpose is the full value of the consideration to be taken to be the fair market value. To my mind it can only be for the purpose of sections 45 and 48; and that provides an organic nexus between these, sections and section 52. But, I am told that this construction which ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s present form was there even prior to the introduction of sub-section (2) of section 52 by the Finance Act of 1964, and remained unaltered after the said amendment. I am also of the view that neither the speech of the Minister at the time of the introduction of the Finance Bill, nor the instructions issued by the Central Board of Revenue after the same was passed into law, showing what the Board understood to be the intendment and the effect of section 52, should be allowed to control the plain words of the section. Counsel for the respondent contended that, if section 52 were to be read along with section 48, for the purpose of assessing the capital gains tax, the process would involve the perpetuation of two fictions, a process not warranted by law. It was said that we have first to deem the "full consideration" to be the "fair market value" under section 52, and next, to deem the said deemed consideration to be the capital gains, for the purpose of assessment under section 45. Factually, I do not think a deeming twice over is either contemplated or involved. As I understand section 52, it treats the consideration referred to in the two sub-sections therein, which is the same a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be a gift made by the transferor." In the light of these provisions it was said that the transaction in question, to the extent of the difference between the fair market value of the property and the consideration received for the transfer was a gift, and, therefore, cannot be treated as a transfer of a capital asset for the purpose of the Income-tax Act. I am unable to agree. The definition section, and section 4 of the Gift-tax Act, both make it clear that they are only for the purpose of that Act, Being so, I find no warrant for reading the special provisions of the Gift-tax Act into the Income-tax Act. Being so, I find any provision in the Indian Income-tax Act, 1922, which forbids the assessment to tax for capital gains on the basis of a transfer which has been treated as gift under the Gift-tax Act. Sections 50A and 50B of the Estate Duty Act, 1953, are quite revealing and instructive in the context. They read as follows : "50A. Relief from estate ditty where gift-tax has been paid.--Where tax has been paid under the Gift-tax Act, 1958, in respect of a gift of any property and the property is also included in the estate of the donor as property passing under this Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he object of avoidance or reduction of tax liability as required by section 52(1). It was argued that to permit the assessment to income-tax on the ground of capital gains in respect of the transfer here involved, and, at the same time to assess the difference between the market value and consideration received to gift-tax under the Gift-tax Act, would amount to double taxation. As pointed out in Reid's Trustees v. Commissioners of Inland Revenue, there is nothing inconsistent in principle in making the same sum subject to two different taxes under two different enactments. The statutes therein involved were the Income-tax Act and the Estate Duty Act. Besides, the scheme of taxation to income-tax is different from that under the Gift-tax Act. It is the income that accrues or arises or is deemed to accrue or arise as a result of the transfer that is subject to assessment under the Income-tax Act. It is the transaction of the gift itself, i.e., the transaction used for transmission of title that is assessed under the Gift-tax Act. So understood, there is no question of double taxation. In view of my finding that section 52 of the Income-tax Act, 1961, must be read along with sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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