JUDGMENT
A.R. Tiwari, J.
1. The Income-tax Appellate Tribunal, Indore, has referred question No. 1 at the instance of the Revenue and question No. 2 at the instance of the assessee for our answer :
” (1) Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that no capital gain arose to the assessee under Section 45 of the Income-tax Act, 1961 ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that there was a transfer of shares by the assessee to his wife, within the meaning of Section 45 of the Act ?”
2. The facts lie in a narrow compass. The assessee gave 5,852 equity shares of Union Carbide and 1,637 equity shares of Chemical and Fibres, apart from cash and other properties to his wife in connection with an agreement to live apart in pursuance of a consent decree obtained from the competent court. According to the Income-tax Officer, the assessee transferred the above shares and other assets as capital gain and as such he added the said amount of Rs. 74,098 in the income of the assessee. The assessee filed the appeal and claimed that there was no transfer of capital asset. In the alternative it also claimed that no capital gain assessable under the Income-tax Act accrued to it. The Commissioner of Income-tax (Appeals) rejected both the contentions of the assessee and held that the Income-tax Officer was justified in bringing to tax capital gain arising to the assessee. The assessee filed further appeal before the Tribunal and reiterated the same contentions. The Tribunal held that there was transfer of shares by the assessee to his wife but no gain accrued which can be added in the income of the assessee as capital gain. The Tribunal, therefore, held that the sum of Rs. 74,098 could not be added in the income of the assessee as capital gain. The Commissioner of Income-tax, Bhopal, then filed an application under Section 256(1) of the Income-tax Act seeking statement of the case and reference of the question as covered under question No. 1. The assessee on this application also proposed a question, noted as question No. 2, as cross-reference in terms of the principles of law laid down by the Supreme Court in the case of CIT v. V. Damodaran [1980] 121 ITR 572. The Tribunal accepted the prayer of both the sides and referred the aforesaid questions of law for our opinion.
3. We have heard Shri D. D. Vyas, learned counsel for the applicant/ Department, and Shri S. C. Bagdiya, learned counsel for the non-applicant/assessee.
4. Section 45(1) of the Act defines “Capital gains”-any profits or gains arising from the transfer of a capital asset effected in the previous year chargeable to income-tax under the head “Capital gains” are deemed to
be the income of the previous year in which the transfer took place. The property was given to the wife in connection with an agreement to live apart. Such an act is permissible under Section 64(1)(iv) of the Income-tax Act. The Tribunal noted the expression “or in connection with an agreement to live apart” as employed in Section 64(1)(iv) and observed that the Legislature meaningfully did not use the word consideration and instead used the word “connection”. The property was given in terms of a compromise decree. The Tribunal, therefore, held that the assessee by giving the property quantified at Rs. 1,83,000, did not receive any material benefit to that extent. It, therefore, held that no capital gains can be said to have accrued to the assessee. The giving of property was not as a consideration but was in connection with an agreement to live apart.
5. According to Section 125(4) of the Code of Criminal Procedure, the wife is disentitled to receive any allowance from her husband if “they are living separately by mutual consent”. The assessee in the present case gave the property, as noted above, in connection with an agreement to live apart and thus created a case of living separately by mutual consent. There was no question of any capital gain in terms of Section 45 of the Act.
6. Counsel for the Revenue was unable to point out as to what profit or gain arose from this activity. He placed reliance on the decision in Sevantilal Maneklal Sheth v. CIT [1968] 68 ITR 503 (SC). True it is that the mischief should be prevented but in the instant case, there was a court case culminating in a consent decree and the property was given not as a consideration but in connection with the same. In our view, the aforesaid decision is not helpful to the Department.
7. As no capital gain accrued to the assessee in terms of Section 45 of the Income-tax Act, we are satisfied with the correctness of the order passed by the Tribunal and accordingly answer question No. 1 in the affirmative, i.e., in favour of the assessee and against the Department.
8. As regards question No. 2, we find that Section 2(47) of the Income-tax Act defines the term “transfer” as under :
” (47) ‘transfer’, in relation to a capital asset, includes, —
(i) the sale, exchange or relinquishment of the asset ; or
(ii) the extinguishment of any rights therein ; or
(iii) the compulsory acquisition thereof under any law ; or”
9. We find that the assessee extinguished his rights in the aforesaid property and as such the act is covered by the aforesaid definition and is clearly the transfer in terms of the provisions of the Act. The asset was relinquished and the rights were extinguished. The spouse became the owner of the aforesaid property given to her in connection with the agreement to live apart. In view of this position, counsel for the assessee was unable to show as to how it was not a case of transfer of the property. It is clearly a case of transfer of capital asset in favour of the wife, though in pursuance of the consent decree and in connection with the agreement to live apart in terms of Section 45 of the Act.
10. It is in the area of legislative ambiguities, yet not receding”, that courts have to fill gaps, dear doubts and mitigate hardships. In the words of Judge Learned Hand, spoken in Cabell v. Markhan [1945] 148 F 2d 737, 739, we get enough light to locate the correct path ;
” It is one of surest indexes of a mature and developed jurisprudence …. to remember that statutes always have some purpose or object to accomplish whose sympathetic and imaginative discovery is the surest guide to their meaning.”
11. Accordingly, we are satisfied that the Tribunal correctly held that there Was transfer in terms of Section 45 of the Act. Accordingly, we answer question No. 2 in the affirmative, i.e., in favour of the Department and against the assessee.
12. Consequently, we answer the aforesaid two questions in the affirmative as noted above and dispose of this case accordingly.
13. Parties are, however, left to bear their own cost of this reference application as incurred.
14. A copy of the order shall be transmitted to the Tribunal.