Appeal No 2454 of 1966
Appeal from the Judgment and order dated February 1922 1965 of the Bombay High Court in Income tax Reference No 2 of 1962
Sanat P Mehta and JB Dadachanji for the appellant
Niren De Solicitor General BRL lyengar and RN Sachthey for the respondent
The Judgment of the Court was delivered by Ramaswami J
This appeal is brought by certificate from the judgment of the Bombay High Court dated the 22nd February 1965 in Income tax Reference No 2 of 1962
In the year 1951 the assessee Maneklal Ujamshi hereinafter referred to as the assessee made a gift of 1184 ordinary and 155 preference shares in Changdeo Sugar Mills Ltd to his wife Bai Laxmibai
The total value of these transferred shares on the date of the transfer was Rs 68730 
Subsequent to the transfer the company converted the preference shares into ordinary shares giving the shareholders 8 ordinary shares for each preference share with the result that on December 31 1954 Bai Laxmibai held in all 2424 ordinary shares of the mills
Out of these 2424 shares
Bai Laxmibai sold 2400 shares on August 1 1956 for the sum of Rs 154800 resulting in a capital gain of Rs 70860 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 Ms AH BhivandiwaIla  Co in which Maneklal as well as his son Sevantilal happened to be partners
The amount deposited by Bai Laxmibai fetched a yearly interest of Rs 9288 
In the assessment of Maneklal for the assessment year 1957 58 the Income Tax Officer included the amount of Rs 70860 which was the profit made by Bai Laxmibai on the 362 sale of the shares as income of Maneklal under section 163aiii of the Indian Income Tax Act
Similarly in the assessment of Maneklal for the assessment years 1958 59 and 1959 60 the Income Tax Officer included in each year the amount of Rs 9288 which was the interest earned by Bai Laxmibai on the deposit of the sale proceeds with Ms Bhivandiwalla and Co as the income of Maneklal under section 163aiii
According to the Income Tax Officer the gain which had resulted from the sale of the shares was the income of the wife of the assessee which arose directly or indirectly from the assets transferred by the assessee to his wife otherwise than for adequate consideration and therefore was required to be included in the computation of the total income of Maneklal
The Income Tax Officer also took the view that the amount of interest which Bai Laxmibai had received from the sale proceeds deposited by her with Ms Bhivandiwalla  Co was also income of the wife of Maneklal which arose directly or indirectly from the assets transferred by Maneklal to her
Accordingly in the assessment order for the first year the Income Tax Officer included the amount of Rs 70860 and in the assessment orders for the next two years he included the amount of Rs 9288 in the total taxable income of Maneklal
Appeals against all these three assessment orders were filed before the Appellate Assistant Commissioner
In the appeal against the first assessment order for the assessment year 1957 58 the Appellate Assistant Commissioner agreed with the view taken by the Income Tax Officer and dismissed the appeal
In the other two appeals he partly allowed the appeals taking the view that only that part of the interest which was attributable to the monetary value of the shares covered by the shares at the time of the gift was liable to be included in the total income of Maneklal in accordance with the provisions of section 163aiii and the balance could not be included under the said provision
Since the monetary value of the shares gifted to Bai Laxmibai at the time when the gift was made was only Rs 69730  the interest attributable to it worked out at Rs 4l 38 
Out of the total interest of Rs 9288 which was received by Bai Laxmibai in each of those years he directed that only an amount of Rs 4183 should be included in the total income of Maneklal in each of those two years and the balance of Rs 5105 should be deleted
Against the orders of the Appellate Assistant Commissioner on these appeals the assessee appealed to the Appellate Tribunal
The Department on the other hand appealed against the orders of the Appellate Assistant Commissioner for the years 1958 59 and 1959 60 insofar as they allowed exemption in respect of Rs 4183 out of the total amount of Rs 9288 for each year
The Appellate Tribunal dismissed the appeal of the assessee with regard to the assessment year 1957 58
For the assessment years 363 1958 59 and959 60 the Appellate Tribunal allowed the appeals of the Department and dismissed the appeal of the assessee for the assessment
year 1959 60
According to these decisions of the Appellate Tribunal the result was that for the assessment year 1957 58 the order of the Income Tax Officer that the amount of Rs 70860 which was the profit or gain on the sale of the shares by Bai Laxmibai was liable to be included in the total income of Maneklal was upheld and for the later two years the entire amount of interest viz Rs 9288 was held to be liable to be included in the total income of Maneklal in each of those two years
Thereafter at the instance of the assessee the Appellate Tribunal stated a case to the High Court on the following questions of law 1
Whether in computing the total income of Maneklal for the assessment year 1957 58 the sum of Rs 70860 has been properly included therein in accordance with the provisions of section 163aiii of the Income tax Act 1922  2
Whether in computing the total income of Maneklal for the assessment year 1958 59 the sum of Rs 5104 has been properly included therein in accordance with provisions of section 163aiii of the Income tax Act 1922 3
Whether in computing the total income of Maneklal for the assessment year 1959 60 the sum of Rs 4183 has been properly included therein in accordance with the provisions of section 163aiii of the Income tax Act 1922  4
Whether in computing the total income of Maneklal for the assessment year 1959 60 the sum of Rs 5105 has been properly included therein in accordance with the provisions of section 163aiii of the Income tax Act1922  By its judgment dated February 19 1965 the High Court answered the first question in the affirmative and against the assessee
It answered questions Nos 2  4 in favour of the assessee and against the Department
As regards question No 3 the High Court answered it in the affirmative and in favour of the Department
The reason was that Counsel for the assessee did not press it or challenge the correctness of the view taken by the Appellate Tribunal and accepted as correct the conclusion of the Tribunal with regard to the point involved in that question
Section 163aiii of the Income Tax Act 1922 provides as follows 364 in computing the total income of any individual for the purpose of assessment there shall be included  a so much of the income of a wife of such individual as arises directly or indirectly   iii from assets transferred directly or indirectly to the wife by the husband otherwise than for adequate consideration or in connection with an agreement to live apart
Section 26C of the Income tax Act 1922 states Income  includes   vi any capital gain chargeable under section 12B Section 12B of the Income Tax Act enacts 1 The tax shah be payable by an assesee under the head capital gains  in respect of any profits or gains arising from the sale exchange relinquishment or transfer of a capital asset effected after the 31st day of March 1956 and such profits and gains shall be deemed to be income of the previous year in which the sale
exchange relinquishment or transfer took place  With regard to the first question Mr Mehta put forward the argument that what comes within the ambit of section 163aiii is the income from the transferred assets which is different from the profit or gain arising from the sale of the transferred assets or in other words the capital gains from the transferred assets
It was argued in the first place that what comes within the ambit of section 16 3 a iii was the income from the assets  ie the income which the asset produces while it continues to remain in the hands of the assessee and does not include the gain which the assessee makes by selling the asset and parting with possession of it
We see no justification for this argument
In our opinion there is no logical distinction between income arising from the asset transferred to the wife and income arising from the sale of the assets so transferred
The profits or gains which arise from the sale of the asset would arise or spring from the asset although the operation by which the profits or gains is made to arise out of the asset is the operation of the sale
If the asset employed say by way of investment and produces income the income arises or springs from the asset the operation which causes the income to spring from the asset is the operation of the investment
In the operation of the investment income is produced 365 while the asset continues to belong to the assessee while in the operation of a sale gain is produced which is still income but in the process the title to the asset is parted with
Although the processes involved in the two cases are different the gain which has resulted to the owner of the asset in each case is the gain which has sprung up
or arisen from the asset
There is hence no warrant for the argument
that the capital gain is not income arising from the assets but it is income which arises from a source which is different from the asset itself
It was argued in the second place that section 163aiii was enacted in 1937 when the word income  did not include capital gains  and income from property was understood to be income falling under that head in section 6 of the Act
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 163aiii was enacted the definition of  income  did not include capital gains  but capital gains having been brought within the meaning of income  in section 26C the expression income  as used in section 163 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 163 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 163aiii 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
It is a sound rule of interpretation that a 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
We are therefore unable to accept Mr Mehta s argument on this aspect of the case
For the reasons given we hold that the High Court has rightly answered the first question against the assessee and this appeal is accordingly dismissed with costs
RKPS Appeal dismissed


Summary:
The appellant made a gift in 1951 of certain ordinary and preference shares in a company to
his wife and on the date of transfer the value of the shares was Rs 69730
After the company had converted the preference shares into ordinary shares the appellant s wife sold most of the shares held by her for Pa 154800 resulting in a capital gain of Rs 70860 as computed under section 12B of the Income Tax Act
She deposited the entire amount realised from the sale of shares with a firm and thereby earned an interest of Rs 9288 per year
In the appellant s assessment for 1957 58 the Income Tax Officer included the amount of Rs 70860 on the view that the gain resulting from the sale of the shares was the income of the appellant s wife which arose directly or indirectly from assets transferred by him within the meaning of section 16 3aiii of the Income Tax Act 1922
Similarly in the appellant s assessment for the year 1958 59  and 19591 60 the interest amount of Rs 9288 was also included as income within the meaning of section 16 3 a iii
In appeals made against the three assessment orders while the Appellate Assistant Commissioner dismissed the appeal in respect of the assessment year 1957 58 be partly allowed the other two appeals taking the view that only that part of the interest which was attributable to the monetary value of the shares at the time of the gift was liable to be included in the appellant s total income under section 16 3aiii since the monetary value of the shares gifted to the wife at the time when the gift was made was
only Rs 69730
the interest attributable to it worked out at Rs 4138 and only this amount could be included in the appellant s income
The Appellate
Tribunal dismissed the appellant s further appeal and also allowed cross appeals filed by the Department
The High Court
upon a reference
held that the sum of Rs 70860 was properly included in the appellant s income in 1957 58 but that the interest amount in excess of Rs 4138 was not liable to be included in his income for 1958 59 and 1959 60
In the appeal to this Court the only question for consideration was whether the amount of Rs 70860 was the appellant s income under section 16 3aiii
It was contended on his behalf i that what comes within the ambit of section 163aiii is the income from the transferred assetswhich is different from the profits or gains arising from the sale of the transferred assets
or in other words the capital gains from the transferred assets and ii that section 163aiii was enacted in 1937 when the word income  did not include capital gains  and income from the property was understood to be income falling under that head in section 6 of Act
HELD The High Court had rightly decided that the amount
of Rs 70860 was properly included in the assessees income under section 16 3 a iii
361 i There is no logical distinction between income arising from the asset transferred to the wife and arising from the sale of the assets so transferred
The profits or gains which arise from the sale of the asset would arise or spring from the asset although the operation by which the profits or gain is made to arise out of the asset is the operation of sale
364 G H ii Although at the time when section 163aiii was enacted the definition of income  did not include capital gains  capital gains having been brought within the meaning of income  in section 26C the expression income  as used in section 163aiii 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 163aiii of the Act to suggest that capital gains are excluded from its scope and there is no reason why a restricted interpretation should be given to the provisions of section 163 a iii
365 C E