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1965 (2) TMI 129

nted in the present assessment proceedings, which relate to the assessment years 1957-58, 1958-59 and 1959-60, by his son, the present applicant before us. In the year 1951, the assessee Maneklal had made a gift of 1,184 ordinary and 155 preference shares of Changdeo Sugar Mills Ltd. to his wife, Bai Laxmibai. The total value of these transferred shares on the date of the transfer was ₹ 69,730. Subsequent to the transfer of these shares by Maneklal to his wife, the preference shares were converted by the company into ordinary shares giving the shareholders 8 ordinary shares for one preference share, with the result that by the end of the year 1954 Bai Laxmibai possessed 2,424 ordinary shares of the mills. On the 1st of August, 1956, Bai Laxmibai sold 2,400 out of the said shares possessed by her for a total price of ₹ 1,54,800 resulting in a 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 fetch .....

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Laxmibai at the time when the gift was made was only ₹ 69,730, the interest attributable to it worked out at ₹ 4,183. Out of the total interest of ₹ 9,288, which was received by Bai Laxmibai in each of these years, he directed that only an amount of ₹ 4,183 should be included in the total income of Maneklal in each of these two years and the balance of ₹ 5,106 should be deleted. As against the decision and orders of the Appellate Assistant Commissioner in these appeals the assessee appealed to the Income-tax Appellate Tribunal against the decision and order in respect of the assessment year 1957-58 and also against the order in respect of the assessment year 1959-60 in so far as it had disallowed exemption in respect of the amount of ₹ 5,106 out of the total amount of ₹ 9,288. The department, on the other hand, appealed against 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 t .....

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order for the assessment year 1959-60. It will also be seen that question No. 2 and question No. 4 are the same, with the only difference that question No. 2 is for the assessment year 1958-59, while question No. 4 is for the subsequent assessment year. Question No. 3, which is one of the questions relating to the assessment order for the year 1959-60, has not been pressed by Mr. Mehta learned counsel for the assessee. The conclusion of the Tribunal so far as that question is concerned is accepted as correct by Mr. Mehta and he has advanced no arguments challenging that conclusion. That question, therefore, will be answered in the affirmative. The amount of ₹ 70,860, which is involved in the first question, is the surplus obtained on the sale of the shares, which were transferred by Maneklal to his wife and the question that has to be considered 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 as .....

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gh in 1947 capital gains was included as an item of income in the inclusive definition of the word, no change was made in section 16(3)(a)(iii ) to show that this extension of income was also intended to be incorporated in section 16(3)(a)(iii ). Secondly, it is argued that the expression "income from property" having been used in section 5 as a distinct head of income and a new head as "capital gain" having been created in 1947 for the computation of the capital gain which was thenceforward included as an item of income, the expression "income from property" must be understood differently and must be given a different meaning from the meaning which the expression "capital gains" has. However, it will be seen, says the learned counsel, that the expression "capital gain" read in the light of section 12B, which is prescribed for its computation, will show that the income, which is called "capital gain" is the profit or gain not arising from the asset but from the sale of the asset. That, according to the learned counsel, is the reason why different heads have been created for "income from property" and "capita .....

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ction 16(3)(a)( iii) would mean income according to the amended definition of the word and would, therefore, include the capital gains. The argument that although the word "income" is capable of including capital gains, the income arising directly or indirectly from assets would not include income arising directly or in-directly from the sale of the asset, but only such income as arises directly or indirectly from the assets, which continue to be with the assessee and are not parted with by him also does not appeal to us. We do not see any reason why such a meaning must result from the provisions of section 16(3)(a)( iii). As we have already stated earlier, we do not accept Mr. Mehta's argument that income from assets cannot be income from the sale of the assets. According to us, both the incomes arise from the asset itself and come within the ambit of section 16(3)(a)( iii). Mr. Mehta has invited our attention to Commissioner of Income-tax v. Sodra Devi and Damayanti Sahni v. Commissioner of Income-tax [1957] 32 ITR 615; [1958] SCR 1 , for his submission that there is a distinction between income from property and income from the sale of the assets. We do not dispute .....

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. Coming to the second and the fourth questions, which essentially constitute one question, what is required to be considered is whether the interest from the entire proceeds from the sale of the transferred assets, which was obtained by the wife for the subsequent years, was liable to be included in the total income of the husband for those years or only such of it as was attributable to the value of the transferred assets on the date of the transfer by the husband to the wife. Now the facts are that the value of the assets at the date of the transfer, having regard to the fact that a part of the transferred shares, which were preference shares, were converted by the company into ordinary shares, was ₹ 69,730. When these transferred assets were sold in the year 1956, they realised ₹ 1,54,800 and the gain, which was made by Bai Laxmibai, was ₹ 70,860, because what she had got from the husband was worth ₹ 69,730 and what she realised on the sale of it was ₹ 1,54,800. Now, the transaction could be regarded as a conversion of the asset from one form into another: the assets which were transferred to Bai Laxmibai were converted by her into cash which amoun .....

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hich she had received during the previous year. In our opinion, therefore, out of the interest received by Bai Laxmibai for the subsequent years 1958-59 and 1959-60 only such interest as would be attributable to the value of the transferred assets, viz. , the amount of ₹ 69,730, would be liable to be included in the total income of Maneklal and not the rest. Since the amount of ₹ 5,104, which is mentioned in questions Nos. 2 and 4 is the amount, which is not attributable to the value of the transferred assets, viz., ₹ 69,730, but to the balance as held by the departmental authorities, that amount is not liable to be included in the total income of the assessee. Mr. Joshi has tried to point out to us that the amount of ₹ 5,104 which is mentioned in the said questions is not actually the amount which is attributable to the balance. That amount, according to him, would come to something less than that amount. We are afraid, we cannot go into that investigation. The question that has been framed and referred to us is on the basis that the amount of ₹ 5,104 is the amount, which is attributable to the balance of the sale proceeds over their value of ₹ .....

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