ORDER
Sri M.V.R. Prasad, A.M.
1. This appeal is directed against the order of the CIT (Appeals) dated 1-5-1991 for the assessment year 1986-87. The grounds taken by the assessee read as under :-
(1) The CIT (A) erred in law in upholding the action of the Asstt. CIT in assessing capital gain relating to short-term capital assets amounting to Rs. 1,00,250 as non-investment income instead of assessing it as investment income under the provisions of Chapter XIIA of the Act.
(2) The Asstt. CIT be directed to assess short-term capital gain as investment income under the provisions of Chapter XIIA and modify assessment accordingly.
2. The gross total income of the assessee included the following items :-
“I. Interest on securities :
(As per statement C enclosed) Rs. 40,552
II. Capital gains :
Relating to short-term capital
assets : (As per statement D
enclosed) Rs. 1,00,250
III. Income from other sources :
1. Dividend income :
(As per statement E enclosed) Rs. 22,522
2. Interest income :
(i) Interest on application
money (As per statement F
enclosed) Rs. 13,287
(ii) Bank interest on NRO A/c.
with Indian Bank -
---------------
Gross Total Income Rs. 1,76,611
---------------
The issue raised in this appeal relates to the rate at which the short-term capital gains of Rs. 1,00,250 mentioned above has to be taxed under the provisions of section 115E of the IT Act. It is not disputed that the assessee is a non-resident Indian to whom the provisions of Chapter XIIA of the IT Act apply. It is also not disputed that the assets in question in respect of which the short-term capital gain of Rs. 1,00,250 was derived are of the nature of specified assets mentioned in section 115C of the IT Act. For understanding the issue raised in this appeal it will be worthwhile to reproduce the relevant provisions of section 115C, 115D and 115E of the IT Act. The relevant portion of section 115C reads as follows :-
“115C. In this Chapter, unless the context otherwise requires, –
** ** ** (b) "foreign exchange asset" means any specified asset which the assessee has acquired or purchased with, or subscribed to in, convertible foreign exchange; ** ** ** (b) "long-term capital gains" means income chargeable under the head "Capital gains" relating to a capital asset, being a foreign exchange asset which is not a short-term capital asset;" Section 115D reads as follows :- "115D. (1) No deduction in respect of any expenditure or allowance shall be allowed under any provision of this Act in computing the investment income of a non-resident Indian; (2) Where in the case of an assessee, being a non-resident Indian, - (a) the gross total income consists only of investment income or income by way of long-term capital gains or both, no deduction shall be allowed to the assessee under Chapter VI-A; (b) the gross total income includes any income referred to in clause (a), the gross total income shall be reduced by the amount of such income and the deductions under Chapter VI-A shall be allowed as if the gross total income as so reduced were the gross total income of the assessee." Section 115E reads as follows :- "115E. (1) Where the total income of an assessee, being a non-resident Indian, consists only of investment income or income by way of long-term capital gains or both, the tax payable by him on his total income shall be the amount of income-tax calculated on such total income at the rate of twenty per cent of such income. (2) Where the total income of an assessee being a non-resident Indian includes any income of the nature referred to in sub-section (1), the tax payable by him on his total income shall be - (i) the income-tax payable by him in accordance with the provisions of sub-section (1) on income of the nature referred to in that sub-section included in the total income; plus (ii) the amount of income-tax chargeable on the total income as reduced by the amount of income of the nature referred to in sub-section (1), had the total income so reduced been his total income."
3. The assessee claimed that the short-term capital gain of Rs. 1,00,250 claimed by the assessee is of the nature of investment income as defined under section 115C and so accordingly, should be taxed at the concessional tax rate of 20% stipulated in section 115E. The Assessing Officer rejected the claim on the ground that the concessional tax rate of 20% stipulated in section 115E applied only to long-term capital gains and investment income which according to the Assessing Officer did not include short term capital gains. Before the CIT(A) the assessee relied in support of its claim on the decision of the Tribunal, Delhi Bench in the case of Smt. Trishla Jain v. Dy. CIT [1990] 34 ITD 523. In this decision the Tribunal took the view that the surplus realised on the sale of capital assets is also income derived from the assets. For this view, the Tribunal relied upon the decision of the Apex Court in the case of Sevantilal Maneklal Sheth v. CIT [1968] 68 ITR 503 (SC) and also the decision of the Hon’ble Bombay High Court in the case of Manubhai A. Sheth v. N. D. Nirgudkar Second ITO [1981] 128 ITR 87. The CIT(A) rejected the claim on the ground that the specific reference to the long-capital gains in section 115E precluded, by implication, the application of the concessional tax rate to short-term capital gains. In support of his view that the “investment income” referred to in section 115E did not include short-term capital gains as contended by the assessee, he relied upon the following decisions :-
(i) CIT v. B. S. Rajendrappa [1986] 162 ITR 666/27 Taxman 460 (Kar.);
(ii) CIT v. T. K. Sarala Devi [1987] 167 ITR 136/32 Taxman 451 (Ker.);
(iii) Ambalal Maganlal v. Union of India [1975] 98 ITR 237 (Guj.).
The above decisions take a view contrary to the view taken by the Hon’ble Bombay High Court in the case of Manubhai A. Sheth (supra) and held that when a capital asset is sold what is realised is capital receipt assessable to capital gains and not a revenue receipt. Before us the learned counsel for the assessee relied upon the decision of the Delhi Bench of the Tribunal cited supra and contended that the expression “investment income” used in section 115E includes short-term capital gains as the income derived on a sale of asset is also income and in this context he has also relied upon the ratio of the decision of the Bombay High Court in the case of Manubhai A. Sheth (supra) and also the decision of the Apex Court in the case of Sevantilal Maneklal Seth cited supra, on which the Delhi Bench of the Tribunal itself has relied.
4. The learned departmental representative on the other hand pleaded that the concessional rate is applicable only for income in its normal sense of the term like dividend interest, on securities and long term capital gains and not for short term capital gains for the simple reason that the short-term capital gain represents “hot money” and the purpose of the Legislation is to discourage the out-flow of such hot money coming from abroad. Countering the argument of the learned counsel for the assessee that in case of ambiguity in a provision an interpretation favourable to the assessee is to be given, the learned deptt. representative pointed out that such a beneficial interpretation has to be given only there is an ambiguity but an ambiguity cannot be presumed and when on a plain reading of the statutory provision the Court is of the opinion that one and only one interpretation is reasonably possible which is against the assessee, it cannot give an erroneous interpretation in favour of the assessee by resorting to the principle of beneficial construction. In this context he relied upon the decision of the jurisdictional High Court in the case of Oudh Sugar Mills Ltd. v. CIT [1996] 222 ITR 726/89 Taxman 590 (Bom.).
5. We are of the view that we have to uphold the contention of the learned deptt. representative even though the decision of the Tribunal of Delhi Bench cited supra is in favour of the assessee. We have given our anxious consideration to the issue on hand. We are also aware that the Tribunal should be very wary of coming to a conclusion different from the one arrived at earlier whether by the same Bench or by a different Bench. The main plank of the decision of the Delhi Bench Tribunal is the decision of the Apex Court in the case of Sevantilal Maneklal Sheth (supra) in which it was held that the surplus realised on the sale of an asset is also income. So, it is necessary to consider this decision in detail and to consider whether this decision leads to the construction sought to be placed by the appellant on the scope of section 115E. This decision of the Apex Court was given in the context of interpreting the provisions of section 16(3)(a)(iii) of the Income-tax Act, 1922 which corresponds to section 64(iv) of the Income-tax Act, 1961. The issue considered was whether when assets were transferred by husband to wife the capital gains derived by wife by selling the assets could be construed as income arising directly or indirectly from assets transferred so as to attract the clubbing provisions of section 16(3)(a)(iii) of the 1922 Act. The relevant portion of the head-note of this decision reads as follows :-
“The inclusion of “capital gains” in the definition of “income” was for the first time enacted in 1947. It is true that at the time when section 16(3)(a)(iii) of the Indian Income-tax Act, 1922 was enacted, the definition of “income” did not include “capital gains” but capital gains having been brought within the meaning of “income” in section 2(6C) the expression “income” as used in section 16(3)(a)(iii) must be construed according to the amended definition of the word and would, therefore, include capital gains. There is nothing in the context or language of section 16(3)(a)(iii) of the Act to suggest that capital gains are excluded from its scope.
Held, accordingly, that the capital gains derived by the wife of the assessee by the sale of assets transferred to her by him had to be included in the total income of the assessee under section 16(3)(a)(iii) of the Indian Income-tax Act, 1922.
There is no reason why a restricted interpretation should be given to the provisions of section 16(3)(a)(iii). The object of the section is to prevent avoidance of tax or reducing the incidence of tax on the part of the assessee by transfer of his assets to his wife or minor child. It is a sound rule of interpretation that statute should be so constructed as to prevent the mischief and to advance the remedy according to the true intention of the makers of the statute.”
Two observations of the Apex Court in the above decision are noteworthy. Firstly, it observed that the definition of income in the 1922 Act did not originally include capital gains. It is only by an artificial and extended definition of the word “income” that capital gains have been brought under the purview of the Income-tax statute. In this context reference can also be made to the decision of the Apex Court in the case of Navinchandra Mafatlal v. CIT [1954] 26 ITR 758 given in the context of interpreting the word “income” in entry No. 54 in List-I of the Seventh Schedule to the Government of India Act, 1935. The Court held that the word should be given the widest connotation in view of the fact that it occurred in a Legislative head conferring the legislative power and that in that context it did not bear the same meaning as was ascribed to it in cases decided under the Income-tax statute but included capital gains. The next observation of the Apex Court made in the case of Sevantilal Maneklal Sheth (supra) that is note-worthy is that it is a sound rule of interpretation that statute should be so construed as to prevent the mischief and to advance the remedy according to the true intention of the makers of the statute. It is also to be noticed that while interpreting a statute the expression used should be given due importance and no part of the expression is rendered otiose. In this context the remarks of the Apex Court in the case of Padmaraje R. Kadambande [1992] 195 ITR 877 also deserved to be kept in mind. The Court observed that, “a statute cannot always be construed with the dictionary in one hand and the statute in the other. Regard must also be had to the scheme, context and – as in this case – to the legislative history of the provision.” Keeping this observation of the Apex Court in mind we are of the view that, notwithstanding the decision of the Delhi Bench of Tribunal cited supra, the word “investment income” used in section 115E does not include within its scope short-term capital gains. If this word is so construed as to include short-term capital gains within its scope the expression “income by way of long term capital gains or both” figuring in sections 115D and 115E would be rendered otiose. Income derived from an asset can be only of two types i.e., either income as normally construed or capital gains. The Act has consistently made a distinction between the short-term capital gains and long-term capital gains, both for applying the tax rates and set off of losses. If the benefit of the concessional tax rate is extended even to short-term capital gains by including the short-term capital gains within the scope of the expression “investment income” used in section 115E such an approach would overlook the distinction consistently made in the Act between the short-term capital gains and long-term capital gains and also, as already observed, render the expression “long-term capital gains or both redundant”. In other words, if normal income and both the types of capital gains i.e., short-term and long term, are to be given benefit of concessional tax rate, the legislature could have stopped with using the expression ‘investment income’ in section 115E. It specifically restricted the concessional tax rate to long-term capital gains presumably with a specific purpose and that purpose appears to be the one mentioned by the learned D.R., i.e., to restrict the outflow of foreign exchange relatable to “hot money”. In other words, the benefit of concessional tax rate is extended only if a trader or investor is dedicated to the Indian market for a sufficiently long time and derives either income like dividends, interest on securities or derives long-term capital gains. The exclusion of short-term capital gains is to prevent short-term or speculative inflows and out-flows of foreign exchange.
6. We may also refer to the provisions of section 204 the relevant portion of which reads as follows :-
“204. For the purpose of sections 192 to 194, section 194A, section 194B, section 194BB, section 194C, section 194D, section 195 to 203 and section 285, the expression “person responsible for paying” means –
(i) ** ** ** (ii) ** ** **
(iia) in the case of any sum payable to a non-resident Indian being any sum representing consideration for the transfer by him of any foreign exchange asset, which is not a short-term capital asset, the authorised dealer responsible for remitting such sum to the non-resident Indian or for crediting such sum to his Non-resident (External) Account maintained in accordance with the Foreign Exchange Regulation Act, 1973 (46 of 1973) and any rules made thereunder;
(iii) ** ** ** Explanation : For the purposes of this section, - (a) "non-resident Indian" and "foreign exchange asset" shall have the meanings assigned to them in Chapter XII-A;"
Clause (iia) of section 204 was inserted w.e.f. 1-6-1986 by Finance Act, 1986. The Reserve Bank of India has given an elaborate circular dated 11-2-1987 for the computation of long-term capital gains of an non-resident Indian for enabling the Banks or Foreign Exchange dealers to deduct tax at source as required under clause (iia) of section 204 of the IT Act and a copy of the circular may be seen at page – 5126, Vol. V, 8th Edition of Sampat Iyengar. It is to be noticed that only in respect of long-term capital gains the authorised dealer is made responsible for TDS which as evident from the said circular of the Reserve Bank of India is to facilitate the remittances of the sale proceeds of the foreign exchange assets from India. It is to be noted that such a facility is extended only to consideration in respect of long term capital assets. If short-term capital gains are also to be taxed at the same rate as applicable to the long-term capital gains, no meaningful purpose is served by restricting the facility of easy remittance of sale proceeds only to long-term capital gains as is done under section 204.
7. Part-II of the First Schedule to the relevant Finance Act stipulates the rates at which the tax is to be deducted at source from income subject to such deduction under the provisions of sections 193 to 195 of the IT Act. The provisions of Chapter XII-A which related to the incomes of non-residents were introduced by Finance Act, 1983 w.e.f. 1-6-1983 and Part-II of the Finance Act, 1983 stipulated that in the case of a non-resident Indian the tax should be deducted @ 20% on investment income and long-term capital gains and on other income other than interest on tax-free securities at 30%. In other words, the scheme for deducting tax at source has made a specific distinction between the rates applicable for investment income and long-term capital gains on one hand and other income (other than interest on tax-free Securities) on the other. If the same rate is applicable for (a) investment income other than capital gains, (b) long-term capital gains and (c) short-term capital gains there was no point for specifying the rate applicable at 20% only to investment income and long-term capital gains. In other words, the same rate of 20% could have been made applicable to simply what could be described as “investment income” as, this covers, if the claim advanced by the appellant is to be accepted, both normal income and income by way of capital gains, both short-term and long-term. As the legislature has taken pains to make the concessional rate of 20% applicable only for investment income and long-term capital gains both in the provisions relating to the deduction of tax at source and section 115E, we have to take the view that investment income does not include short-term capital gains for the purpose of levy of tax under section 115E. The Delhi Bench of the Tribunal did not consider the scheme of the Act particularly the provisions relating to deduction of tax at source which we have considered above. Had these provisions been specifically brought to the notice of the Hon’ble Members of the Tribunal we are of the view that the decision of the Bench would have been different from what it was.
8. We also find that the decision of the Hon’ble Bombay High Court in the case of Manubhai A. Sheth (supra) relied upon by the Tribunal Bombay Bench and also before us by the learned counsel for the assessee is distinguishable inasmuch as the decision was given in the context of interpreting entry No. 82 in List-I of the Second Schedule of the Constitution and their Lordships of the Bombay High Court were not considering a provision which specifically extended the benefit of concessional tax rate to only one type of capital gains as done under section 115E of the IT Act.
9. For the above reasons we are of the view that the benefit of concessional tax rate under section 115E cannot be extended to short-term capital gains. We also find support from the method of interpretation adopted by us in the decision of the Hon’ble Andhra Pradesh High Court in the case of M. Krishna Murthy v. CIT [1985] 152 ITR 163/23 Taxman 126. The question there considered was whether amount received on leave encashment was includible in salary for the purpose of levy of tax. While holding that the amount received by way of leave encashment is only a compensation or reward for services rendered by the employee and so is taxable under the head “salary”. Their Lordships at page-174 of the judgment observed as follows :-
“Further, there is internal evidence furnished by section 17(3)(ii) providing a clue to the intention of the Legislature as to whether payments by way of leave encashment should be regarded as “profits in lieu of salary” and consequently, as “income”. It may be seen that as and when clauses (10A), (10B), (11), (12) and (13A) were inserted into section 10 by successive amendments, section 17(3)(ii) was contemporaneously and, consequently, amended so as to introduce them into the parenthetical clause therein. It is significant that when clause (10AA) which provides for exemption of encashment of leave on retirement from service from inclusion in the assessee’s total income, was inserted into section 10 to be effective from April 1, 1978, by the Finance Act, 1982, no consequential amendment of section 17(3)(ii) was made. That demonstrates the intention of Parliament to the effect that all categories of payment by way of leave encashment should be treated as profit in lieu of salary and, consequently, as income. But, one particular category, viz., leave encashment paid on retirement from service, though of income character, should not be included in one’s total income.”
It may be observed that Their Lordships held that the amount received on leave encashment during service is not exempt from tax as what is exempted under section 10AA was only encashment of leave on retirement from service. In other words, when the provision specifically exempted amount received on encashment of leave on retirement it has to be inferred that the amount received on encashment of leave prior to retirement is not exempt. On analogous reasoning we are of the view that as section 115E extends the concessional tax rate specifically and only to long term capital gains, as a corollary it follows that short-term capital gains are excluded. If such benefit is to be extended to short-term capital gains also by what we may be permitted to call, back door method through their inclusion in the scope of ‘investment income’ has sought to be made out to the assessee by the appellant it would, to our mind, only frustrate the intention of the Legislature.
10. As we have already mentioned, the scheme of the Act particularly in respect of TDS as applicable to non-resident Indians was not brought to the notice of the Delhi Bench of the Tribunal when they decided the case considered supra. Accordingly, we are of the view that the Material provisions of the Act were not considered by the Bench and if they have been considered the decision of the Tribunal would have been different. As this material internal evidence of the Act was not considered by the Delhi Bench of the Tribunal, with respect we are unable to follow the decision.
11. We have indicated hereinbefore that the decision of the Apex Court in the case of Sevantilal Maneklal Sheth (supra) on which the Delhi Bench of the Tribunal mainly relied was given in a different context and the Court came to the conclusion it did because there was nothing in the concerned provision to hold that capital gains were excluded from the scope of the word “income”. We have brought out that in the context of section 115E and other provisions of Chapter XIIA such is not the case at all. The same is the position with the decision of the jurisdictional High Court in the case of Manubhai A. Sheth (supra) on which also same reliance was placed. This decision was given in the context of interpreting a constitutional provision relating to legislative competence and so to our mind is distinguishable. We have also invited attention to the comments of the Apex Court both in the case of Sevantilal Maneklal Sheth (supra) and Padmaraje R. Kadambande (supra) to the effect that a provision in a statute has to be interpreted in the light of its purpose and the scheme of the statute. Bearing in mind the purpose of section 115E which seems to be to discourage out-flows of “hot moneys” and the scheme of the Act, particularly, concerned provisions relating to deduction of tax at source and the mode of interpretation adopted by the Hon’ble Andhra Pradesh High Court in the case of M. Krishna Murthy (supra). We hold that the expression “investment income” mentioned in section 115E does not include short-term capital gains and as such, the assessee is not entitled to concessional tax rate in respect of short-term capital gains.
12. In the result, the assessee’s appeal is dismissed.
Shri Vimal Gandhi, Vice-President
1. My brother, learned Accountant Member, was good enough to put up the proposed order without signature for my consideration. In my view, a departure from the earlier view of the ITAT Delhi Bench was not justified on mere reference to provisions relating to deduction of “tax at source” and the issue requires consideration of definition of ‘investment income’. Accordingly I suggested changes to my brother on above lines. My learned brother then advised me to incorporate my suggestions in a separate note annexed to the order. In the above background, I give my reasons for agreeing with the proposed view of my learned brother.
2. The question whether short term capital gain is entitled to concessional rate of tax as stipulated in section 115E has to be determined with reference to definition of “investment income” under Chapter XII-A of the I.T. Act. The said definition is given in clause (c) of section 115C and is as under :
“investment income” means any income derived from a foreign exchange asset;
“Long-term capital gains” is separately defined and is stated to be one which is not arising from a short-term capital asset. The important word in the definition of ‘investment income’ is “any income derived from a foreign exchange asset”. What is import of expression “income derived from” ?
In the case of Smt. Trishla Jain (supra), the Hon’ble Members of ITAT Delhi Bench ‘E’ held that the above definition of investment income would cover short-term capital gain. For reaching this conclusion, the learned Members took into account certain decisions given in relation to taxability of capital gain on transfer of agriculture land under section 45 of the I.T. Act. Certain High Courts have held that such income is not liable to be taxed. These decisions are relevant as in the definition of “agricultural income” given under section 2(1A) of the I.T. Act, any rent or revenue derived from land or any income derived from such land is included in “agricultural income”. Thus in the above decision the import of word “income derived from” was considered. The learned Members also referred to the decision of Hon’ble Supreme Court in the case of Sevantilal Maneklal Sheth (supra). I shall be referring to the above decision. But before that I would like to refer to certain history of Legislation which is relevant to appreciate the point.
3. Capital gain was not included in the definition of term “income” in the Indian Income-tax Act, 1922 prior to amendment of section 2(6C) and insertion of new section 12B relating to capital gains the above was done under Entry 54 in List I of the Seventh Schedule of the Government of India Act, 1935. This entry with which definition of “income” was challenged before the Constitutional Bench of Supreme Court in the case of Navinchandra Mafatlal (supra). Their Lordships upheld the validity of amendment and held that capital gains after amendment was taxable “income”.
4. In the case of Manubhai A. Sheth (supra) the Hon’ble Bombay High Court held that amendment made to charge capital gain on transfer of agricultural land was not valid/approved and noted the change in the definition of “income” in the following words :-
“The sale price received on the sale of capital asset would be capital receipt. This, is, however, a wholly different thing from saying that the profits or gains arising from the sale of a capital asset is a capital receipt. Such profits or gains are income. Not only clause (24) of section 2 of the 1961 Act, which defines the word “income”, by sub-clause (vi) includes “any capital gains chargeable under section 45” within the meaning of the word “income”, but the Supreme Court also has in Navinchandra’s case [1954] 26 ITR 758, held such capital gains to be income. It is also pertinent to bear in mind that under the proviso to sub-section (3) of section 10 of the 1961 Act capital gains chargeable under the provisions of section 45 are expressly excluded from receipts which are of a casual and a non-recurring nature. Thus, capital gains statutorily are of recurring nature. In view of these statutory provisions and in view of the judgment of the Supreme Court in Navinchandra’s case [1954] 26 ITR 758, it is not open to the respondents to argue that capital gains are capital receipt and not a revenue receipt.”
5. In the case of Ambalal Maganlal (supra) their Lordships of Gujarat High Court took a view different one from that was taken by Bombay High Court and held that capital gain on sale of agricultural land was taxable income. Their Lordships made the following observation :-
“After the decision of the Supreme Court in Navinchandra Mafatlal v. CIT [1954] 26 ITR 758, it is obvious that Parliament has, by virtue of entry 82 in List I of the Seventh Schedule, the power to enact a law relating to tax on capital gains and, therefore, also to amend the law relating to tax on capital gains since such a tax would be a tax on income. It is also clear that by amending the appropriate definition in any enactment relating to Indian Income-tax, Parliament has the power to define what is meant by “agricultural income” and, by virtue of entry 82, it has power to levy tax on income other than agricultural income as thus defined. Under these circumstances, it was competent to Parliament to enact section 2(14)(iii) so as to provide for tax on capital gains arising from agricultural lands which are under consideration in the present case.”
6. In the case of T. K. Sarala Devi (supra) where the leading decision taking a view contrary to that of Bombay High Court in Manubhai A. Sheth’s case (supra) were considered, their Lordships of Kerala High Court observed as under :-
“The profits or gains arising from the sale of land used for agricultural purposes constitute income because section 2(24) of the Income-tax Act, 1961, includes as “income” capital gains chargeable under section 45. Such gain is not income derived from land but is income derived from the sale of the land. Although land is the source of the income, income is derived not by the use of the land, but by the sale of the land, that is, by conversion of the land into cash and if income results from the sale of the agricultural land, it is not agricultural income within the meaning of section 2(1).”
7. In the case of Sevantilal Maneklal Sheth (supra) their Lordship of Hon’ble Supreme Court while considering the question of taxability of capital gain derived by wife on assets transferred by the assessee’s husband based its decision on amendment of definition of “income” made in section 2(6C) in 1947. Their Lordship observed as under :
“The inclusion of “capital gains” in the definition of “income” was for the first time enacted in 1947. It is true that, at the time when section 16(3)(a)(iii) was enacted, the definition of “income” did not include “capital gains” but capital gains having been brought within the meaning of “income” in section 2(6C), the expression “income” as used in section 16(3)(a)(iii) must be construed according to the amended definition of the word and would, therefore, include capital gains. There is nothing in the context or language of section 16(3)(a)(iii) of the Act to suggest that capital gains are excluded from its scope. We see no reason why a restricted interpretation should be given to the provisions of section 16(3)(a)(iii) as contended for the appellant. On the contrary, the object of the enactment of the section is to prevent avoidance of tax or reducing the incidence of tax on the part of the assessee by transfer of his assets to his wife or minor child.”
8. In the case of Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84 their Lordship of Hon’ble Supreme Court has observed as under :
“As regards the aspect emerging from the expression “attributable to” occurring in the phrase “profits and gains attributable to the business of” the specified industry (here generation and distribution of electricity) on which the learned Solicitor-General relied, it will be pertinent to observe that the legislature has deliberately used the expression “attributable to” and not the expression “derived from”. It cannot be disputed that the expression “attributable to” is certainly wider in import than the expression “derived from”. Had the expression “derived from” been used, it could have with some force been contended that a balancing charge arising from the sale of old machinery and buildings cannot be regarded as profits and gains derived from the conduct of the business of generation and distribution of electricity. In this connection, it may be pointed out that whenever the legislature wanted to give a restricted meaning in the manner suggested by the learned Solicitor-General, it has used the expression “derived from”, as, for instance, in section 80J.”
9. It is, therefore, clear from the above that “income derived from any asset” must have a direct nexus and should flow from the use of the asset. A profit or gain arising on the sale of an asset is not “income”. It is a capital realisation. On account of amendment of the term since 1947, “capital gains” has been included in “income” and brought to tax. This has been emphasised almost by all High Courts and the Supreme Court in the above cited decisions. Even the Bombay High Court in the case of Manubhai A. Sheth (supra) also took similar view. It, therefore, follows that capital gains is “income” because it is provided in the Statutory provision. Otherwise, it is not “income”. It is certainly not “income derived” from a capital asset on its transfer as in transfer the capital is realised. Thus the expression “income derived” has acquired a definite and restricted meaning. It is consciously used by the legislature as emphasised by the Supreme Court in the case of Cambay Electric Supply Industrial Co. Ltd. (supra) and other decisions. Having regard to the above discussion “investment income” which means income derived from foreign exchange asset cannot include capital gain arising on transfer of foreign exchange asset for purposes of Chapter XII-A of the I.T. Act. Realisation of capital through transfer of capital asset cannot be income derived from the asset. For this reason legislature separately defined long term capital gain and made specific provision to give it a beneficial treatment. As stated earlier long term capital gain is defined as one which is not short term capital gain. It is, therefore, clear that legislature did not intend to give benefit to short term capital gains although short term capital gains for the purposes of Income-tax Act remained part of “total income” within the meaning of section 2(45) of the Act. The above view is the only view which emerges from authoritative pronouncements of different High Courts and the Supreme Court. Having regard to the observation of different Courts, I agree with my learned brother that there is good ground for not following the decision of Delhi Bench of ITAT.
10. For the above reasons I agree with my learned brother and hold that short term capital gain is not entitled to concessional rate applicable under section 115-E of the I.T. Act. I also agree with the other part of the proposed order of my learned brother. The appeal of the assessee is dismissed.