ORDER
D. Manmohan, J.M.
These two appeals filed by the revenue pertain to the assessment years 1990-91 and 1991-92. The facts necessary for disposal of these appeals are as under :
2. The assessee is a non-resident Indian settled in England. She inherited from the estate of her husband, Late Shri Subodh Welinkar certain shares which were purchased by him by utilising convertible foreign exchange money. The assessee’s husband expired on 16-1-1983 and the permission to transfer the shares in the name of the assessee was given somewhere in the year 1989. During the previous year relevant to the assessment years under consideration, the assessee sold some equity shares of Gujarat Narmada Valley Fertilizer Ltd. Tata Engineering & Locomotive Co. Ltd. and Grasim Industries Ltd. In the returns filed, the assessee claimed taxability of capital gains as per proviso to section 48(1)(a) of the Income Tax Act read with rule 115A of the Income Tax Rules.
3. The assessing officer denied the benefit of proviso to section 48 of the Act on the ground that the assessee who purchased the shares should have been in existence in order to claim deduction as per proviso to the said section whereas in the instant case, the original purchaser of shares expired and the assessee merely inherited the shares of the deceased. In this regard, the assessing officer observed that section 48 has to be read along with section 115C(a) to (e) of the Act and also observed that definitions of various terms such as convertible foreign exchange, etc, show that a property acquired by a non-resident should have been purchased out of NRI account and are subscribed to in convertible foreign exchange whereas in the instant case, the assessee, though a non-resident, has acquired the estate by way of bequest or rather acquired the shares on account of legality of law of inheritance and as such she is not the investor of foreign currency. He also made the following observations :
“That the benefit of Chapter XII-A of special rates to non-resident is available to estate of late Shri Subodh Welinkar is in existence but looses the special status to be taxed at special rates on the date when the assets are distributed to the beneficiaries.”
He, thus, concluded that the benefit available under section 48 of the Act is fully dependent on fulfilling the conditions laid down in section 115C of the Act. He, thus, rejected the benefit available under the proviso to section 48 of the Act.
4. Aggrieved, the assessee contended before the Commissioner (Appeals) that proviso to section 48 of the Act allows computation of capital gains, in respect of the shares in Indian companies acquired in foreign currency, in the hands of an Indian non-resident by conversion of cost of acquisition as well as sale proceeds of the shares into foreign currency which was initially utilised for acquisition of the assets and thereafter the conversion thereof into Indian currency at the prevailing rate of exchange in the manner provided therein. The authorised representative of the assessee claimed that the assessee satisfies all the conditions, inasmuch as, she is a non-resident Indian, the shares were purchased in foreign currency and there is no requirement in the said provision that the appellant herself must be the same person who acquired the shares in foreign currency. In other words, it was claimed that so long as the shares were acquired in foreign currency, the benefit of the said provision would be available even to the person who acquired the shares by inheritence. The Commissioner (Appeals) agreed with the contention of the assessee and, therefore, directed the assessing officer to allow benefit of section 48 of the Act.
5. Aggrieved, revenue is in appeal before us. The learned Departmental Representative submitted that benefit of computing the capital gains as per proviso to section 48 is available only to an assessee who acquires the shares in foreign currency but not to a person who merely inherit the same. In this regard, he relied upon the decision of the Hon’ble Supreme Court in the case of CIT v. Hukumchand Mohanlal (1972) 82 ITR 624 (SC) and that of the Allahabad High Court in Motilal & Sons v. CIT (1975) 101 ITR 177 (All). In the case before the Hon’ble Supreme Court, their Lordships, in the context of section 41(1) of the Act, observed that successor in business is not liable to be taxed under section 41(1) of the Act because the person who obtained the benefit of deduction is not the same as that of the assessee. Drawing analogy from the said decision, the learned Departmental Representative submits that in the instant case, the benefit under proviso to section 48 is confined to the original purchaser of shares and not to the assessee herein. The learned Departmental Representative further submitted that the decision of the Hon’ble Bombay High Court in the case of Ace Camera Equipment (P) Ltd. v. CIT (1984) 150 ITR 227 (Bom) on which the learned authorised representative placed reliance (vide p. 13 of the paper book) is not applicable to the facts of the instant case because their Lordships in that case were concerned with the provisions of section 32(1)(iii) on the strength of the language used therein. The learned Departmental Representative submits that under section 115C(b) of the Income Tax Act, the legislature uses the words “the assessee” which implies that the foreign exchange asset should have been purchased by the assessee in order to claim benefit under section 48 of the Act.
6. On the other hand, the learned counsel appearing on behalf of the assessee, submitted that on a plain reading of proviso to section 48(1)(a) and section 115C of the Act, it is apparent that the legislature has not stipulated any condition that the same assessee should purchase shares in convertible foreign exchange. Explaining further learned counsel pointed out that proviso to section 48 reads as under :
“Provided that in the case of an assessee, who is a non-resident Indian, capital gains arising from the transfer of a capital asset being shares in, or debentures of, an Indian company shall be computed by converting the cost of acquisition, expenditure incurred wholly and exclusively in connection with such transfer and the full value of the consideration received or accruing as a result of the transfer of the capital asset into the same foreign currency as was initially utilised in the purchase of the shares or debentures, and the capital gains so computed in such foreign currency shall be reconverted into Indian currency, so, however, that the aforementioned manner of computation of capital gains shall be applicable in respect of capital gains accruing or arising from every reinvestment thereafter in, and sale of, shares in or debentures of, an Indian Company.
(Underlining, italicised in print, is ours)
Explanation for the purpose of this clause specifies that the term “non-resident Indian” shall have the same meaning as in section 115C(e) of the Act. The terms “foreign currency” and “Indian currency” shall have the meanings respectively assigned to them in section 2 of the Foreign Exchange Regulation Act, 1973 and the conversion of Indian currency into foreign currency and the reconversion shall be at the rate of exchange prescribed in this behalf.
7. Advertising our attention to section 115C(b) of the Act, the learned counsel submits that the definitions given in section 115C(a) to (d) and (f) are applicable only to Chapter XII-A of the Income Tax Act and cannot be extended to other provisions of the Act particularly in the context of computation of capital gains under the proviso to section 48(1)(a) of the Act. He further submits that even if it is applicable, sub-clause (b) to section 115C uses the words “acquired or purchased” meaning thereby that an assessee need not necessarily purchase shares in convertible foreign exchange because acquiring by inheritence is also contemplated in sub-cl. (b). The learned counsel submits that Expln. to proviso to section 48(1)(a) of the Act merely borrowed the definition of the term ‘non-resident Indian’ from section 115C(e) of the Act and in the absence of specific mention about the applicability of other definitions in section 115C of the Act, vis-a-vis section 48 other definitions are not applicable in the present context. He submits that as per proviso to section 48(1)(a), the conditions are that : (a) an assessee should be a non-resident Indian; (b) capital gains should arise from the transfer of a capital asset being shares of an Indian company; and (c) the value of consideration received as a result of the transfer of the capital asset should be converted into the same foreign currency as was initially utilised in the purchase of shares. Nowhere in the proviso, it is said that purchaser of the shares and the seller of the shares should be the same non-resident Indian; the expression merely says that an assessee should be a non-resident Indian. The words “foreign currency as was initially utilised in the purchase of shares” also do not indicate that seller of the shares should be the same person as that of purchaser of shares.
Had it been the intention of the legislature that benefit should be confined to the purchaser of the shares, the legislature would have added the words “by the assessee” after the expression “foreign currency as was initially utilised”. The assessee herein is admittedly a non-resident Indian. She sold shares. The shares were originally acquired by using convertible foreign exchange.
8. The learned counsel for the assessee further submitted that proviso to section 48(1) of the Act merely lays down that the shares which are sold should have been initially purchased by using convertible foreign exchange. It nowhere specifies that the shares should have been purchased by the assessee in convertible foreign exchange. The learned counsel further submitted that wherever the legislature intended that the same assessee should originally purchase an asset to get the benefit in the subsequent years, it was indicated by use of the expression “such assessee” or “the assessee” etc, In the context of section 32(1)(ii) of the Act, the Hon’ble Bombay High Court in the case of Ace Camera Equipment (P) Ltd. (supra), held that the expression “first put to use by the assessee” was used in section 32(1)(ii) of the Act whereas the expression “by the assessee” does not find place in sub-cl. (iii) meaning thereby, it is not necessary that it is first brought into use by the assessee who claims deduction under section 32(1)(iii) of the Act. The learned counsel also relied upon the decision of the Hon’ble A.P. High Court in the case of Late Mir Gulam Ali Khan v. CIT (1987) 165 ITR 228 (AP) wherein their Lordships were concerned with the claim under section 54 of the Act by the legal representatives of the person who sold a residential house. The Hon’ble court observed that exemption under section 54 was allowable even though the assessee who purchased the new house and assessee who sold residential house are not the same. By taking into consideration the object of granting exemption under section 54 and by giving wide and liberal interpretation to the term “assessee” it was held that ‘assessee’ includes his legal heirs also.
9. We have carefully considered the rival submissions and perused the record At the outset, it may be observed that the definitions given in section 115C(a) to (d) and (f) are applicable only in respect of the provisions incorporated in Chapter XII-A of the Income Tax Act. In fact, the section opens with the words “In this Chapter, unless the context otherwise requires…..”. As the definitions have no application to the provisions in other Chapters of the Act, the legislature thought it fit to specify in Expln. to section 48 that section 115C(e) is applicable to section 48. Admittedly, the assessee herein is a non-resident Indian as per section 115C(e) of the Act. Reverting to section 48 of the Act, we find that the section merely speaks of conferring the benefit on an assessee who is a non-resident and who sells the shares which are initially purchased by utilising foreign currency. The absence of the words “by the assessee” while using the expression “foreign currency as was initially utilised in the purchase of the shares” amply shows that the benefit provided in the proviso to section 48(1)(a) of the Act is not confined to an assessee who purchased the shares by utilising the convertible foreign exchange. In other words, so long as an assessee is a non-resident Indian and the shares were purchased, either by the assessee herself or by any other person, by utilising foreign currency, computation of capital gains on such transfer should be as per proviso. As rightly pointed out by the learned counsel for the assessee, the legislature has used the expression “by the assessee” wherever, it is required and the conspicuous absence of the word ‘by the assessee’ in the proviso to section 48 of the Act would show that there is no requirement for an assessee to purchase the shares herself by utilising foreign currency so as to be eligible to take the benefit under proviso to said section. In the light of the decisions cited by the learned counsel for the assessee and also on a plain reading of the relevant provisions, we are of the opinion that the assessee is entitled to benefit of computation as per proviso to section 48(1)(a) of the Act as claimed by her. The case law cited by the revenue are in the context of section 41(1) of the Act and they are distinguishable on facts. We, therefore, uphold the order of the Commissioner (Appeals).
10. In the result, the appeals filed by the revenue are dismissed.
