TMI Blog1995 (11) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... held the capital asset for not more than 24 months immediately preceding the date of transfer, it was a transfer of long-term capital assets by the assessee. He, therefore, claimed that income arising out of the said transaction is liable to be assessed to tax as long-term capital gains. He claimed deductions as are applicable in the case of capital gains arising out of transfer of long-term capital asset under section 48 of the Act. The claim of the assessee was rejected by the Income-tax Officer by taking into consideration that the definition of short-term capital asset had been amended by the Finance Act, 1973, with effect from April 1, 1974, extending the period of holding up to which the capital asset would remain a short-term capital asset to sixty months instead of 24 months. The Income-tax Officer rejected the claim of the assessee on the ground that under the Income-tax Act, tax is to be assessed for the assessment year as per law prevailing on the first day of the commencement of the assessment year, though income in respect of which tax is to be assessed is such which has been earned during the previous year ending before the commencement of such assessment year. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er. The contention before us by the respective parties have been on the lines noticed by us while noticing the facts of the case. Section 4 of the Act is the charging section which provides that where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with, and subject to the provisions of the Act in respect of the total income of the previous year of the person. The provision is obvious that the charge of income-tax does not come into existence before enactment of a Central Act brings it to life by requiring the charge of income-tax in respect of the income of the previous year. It is also clear that the tax chargeable under section 4 is the tax for the assessment year for which the charge has been brought to life and is not a charge ipso facto coming into existence at the assessment year in respect of the income of the previous year and not vice versa, namely, the tax is not to be assessed for the previous year but is assessed for the assessment year in respect of income of the previous year. In that the charge under the income-tax is apparent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 1957-58, which commenced on April 1, 1957. The assessee's contention was that the Surcharge Act did not have retrospective operation so as to affect the income for the assessment year 1957-58. The Revenue had relied on the aforesaid principle. The Supreme Court, drawing a distinction between law coming into force with effect from the date of the commencement of the assessment year and the law coming into force after the commencement of the assessment year opined : "Now, it is well-settled that the Income-tax Act, as it stands amended on the first day of April of any financial year must apply to the assessments of that year. Any amendments in the Act which come into force after the first day of April of a financial year, would not apply to the assessment for that year, even if the assessment is actually made after the amendments come into force." In Reliance Jute and Industries Ltd. v. CIT [1979] 120 ITR 921 (SC), the controversy arose in the circumstances where the appellant before the Supreme Court had claimed set off of unabsorbed loss of the assessment year 1950-51 against its income for the assessment year 1960-61 on the ground that by virtue of section 24(2)(iii) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a person liable has to pay. Lastly, come the methods of recovery if the person taxed does not voluntarily pay. The dictum of Lord Dunedin in Whitney v. IRC [1926] AC 37 (HL) has been quoted time and again by the Federal Court and the Supreme Court of India in various decisions and does not need elaboration. The other principle in the present context is, that the taxable event is that which on its occurrence creates or attracts the liability to tax. Such liability does not exist or accrue at any earlier or later point of time. This is what the apex court stated in Goodyear India Ltd. v. State of Haryana [1991] 188 ITR 402 ; [1990] 76 STC 71 (SC). These two principles do lead us to the conclusion that in so far as the first part of imposition of tax is concerned, namely, what persons in respect of what property are liable to pay tax is to be determined with reference to law as on the date of the occurrence of the event which creates or attracts the liability to tax, unless the statute by express or by necessary implication provides otherwise. In computing such liability what is to be excluded or included or conditions or allowances of deductions or exemptions and the like matters, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the capital asset transferred which would result in a different nature of capital gains in the two sets of capital assets resulting in different liabilities and applicability of various provisions in different manner. As is seen from the scheme of the Income-tax Act, section 45 defines capital gains which arise from transfer of capital assets effected in the previous year, i.e., capital gains do not refer to an income which is accruing from day-to-day for a spell of period but arise at a fixed point of time, namely, the date of transfer. This is unlike the income arising or accruing as profits and gains of a business to be computed in terms of section 28, where the profits and gains can only be said to accrue at the end of the previous year, when the result of the working of business for the entire period is known. Section 48 which prescribes the mode of computation and deduction in respect of income chargeable under the head "Capital gains" divides types of capital gains into two categories, namely, capital gains in general and capital gains arising from transfer of long-term capital asset. Again reference is to capital gains arising from transfer of a long-term capital asset. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... specified asset. For the purposes of operation of section 54E it will have to be determined on the date of transfer as to whether the transfer is of a capital asset which is a short-term capital asset or a long-term capital asset. If it is a long-term capital asset, it is from the date of such transfer that the assessee has to invest the amount of net consideration within six months. The time of six months has to be counted from the date of transfer. If the determination of the nature of the asset and the nature of capital gains arising out of such transfer is to be referred to the date of the commencement of the assessment year to find out its liability prevailing on that date the provisions would be fully unworkable. Likewise section 54 envisaged that where the assessee transfers a capital asset which is a residential house and which is a long-term capital asset resulting in accrual of income chargeable under the head "Income from capital gains" then if the assessee within a specified period constructs or purchases another residential house, it has to be dealt with differently. This provision also directly requires determination of the nature of capital gains arising therefrom a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e facts as they existed during that previous year you are only ascertaining what would have been the income of the previous year if the facts had been as they existed in a subsequent year". In enunciating the principle, the Bombay High Court has followed the Full Bench decision of the Madras High Court in CIT v. Valliammai Achi [1938] 6 ITR 720(Mad), which succinctly stated that the Income-tax Act cannot be applied in any year until the Finance Act has been passed, but the Act cannot be treated as being a statute which is passed annually. It is a permanent enactment but it may not be enforced in any particular year until the Finance Act has been passed. In our opinion, the true ambit of the general principle referred to by us hereinabove is that ordinarily the law applicable on the first day of assessment year governs the assessment of that year, i.e., the liability having been declared ex hypothesi determined on the occurrence of the taxable event which will be in accordance with the facts existing in the previous year, all the machinery provisions for crystallising that liability and recovering the sum to make the levy effective will be governed by the law as at the commencem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... High Court and the Karnataka High Court had taken the view in favour of the contention put forward by the Revenue by applying the principle that whenever amendments are made with effect from the 1st day of April of any financial year, the amendment would apply to the assessment to be made for that year. However, the Rajasthan High Court in CIT v. Laxman Singh [1986] 159 ITR 983 took a different view by holding that whatever substantive rights had accrued to the assessee prior to April 1, 1973, could not be taken away. Though the controversy is not directly before us the conclusion to which we have reached above is that in our opinion there is a clear distinction between the application of the law on the basis of which ex hypothesi charge is determined on the occurrence of the taxable event and the assessment of the charge in accordance with the provisions of the law as in force on the commencement of the assessment year. If that distinction is to be borne, we are in respectful agreement with the view expressed by the Rajasthan High Court. As a result of the aforesaid discussion, we answer the question referred to us in the affirmative, i.e., in favour of the assessee and again ..... X X X X Extracts X X X X X X X X Extracts X X X X
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