SEVANTILAL MANEKLAL SHETH versus COMMISSIONER OF LNCOME-TAX (CENTRAL), BOMBAY

Citation: [1968] 2 S.C.R. 360 · Decided: 22-11-1967 · Supreme Court of India · Bench: J.C. SHAH · Disposal: Dismissed

Judgment (excerpt)

SEVANTILAL MANEKLAL SHETH 
\', 
COMMISSIONER OF l!'iCOME-TAX (CENTRAL), 
BOMBAY 
NO\·ember 22, 1967 
(J.C. SHAH AND V. RAMASWAMI, JJ.J 
Income Tax Act, 1922, "'" 128, 16(3) (a)(iii)-Appellant transferrinR 
shares /() wife-profit made 011 sale of shares by way of capital goiru--
if liable to be included as appellan(s 'income. 
The appellant made a gift in 1951 of certain ordinary and preference 
shares in a company to his wife and on fhe date of uansfer the value of 
the shares was Rs. 69,730. After the <ompany had convened the prefe-
rence shares into ordinary shares the appellant's wife sold most of the 
shares held by her for Rs. 
1,54,800, resulting in a 
capital 
~ain of 
Rs. 70,860 as ccmputed under s. 12B of the Income Tax Act. 1922. She 
deposited the entire amount realised from the sale of shares with a firm 
and fhereby earned an interest of Rs. 9,288 per year. Jn the appellant'• 
assessment for 1957-58, the Income Tax Officer included the amount of 
Rs. 70,860 on the view that the gain resulting from the sale of tbc 
shares was the income of the appellant's wife which arose directly or 
indirectly from assets transferred by him within the meaning of s. 16 
(3)(a)(iii) of the Income Tax Act, 1922. 
Similarly, in the appellant's 
assessment for the year )958-59 and 1959-60, the interest 
amount 
of 
Rs. 9.288 was also included as income '-"'ithin the mcaninj! of "· 16 (3) 
(a)(iii). 
In appeals made against the three a~scssmcnt orders, v..·hilc the 
Appellate Assistant Com.1 •• is.sioner dismissed the appeal in respect of the 
as<essment year 1957-58. he p~rtly allowed the other two appeah takin~ 
the ,·iew that only that part of the interest which was atlributahle to the 
monetary value of 1h~ sharec; ;.it 1hc lime of rhc eift \1.·ac; li:ihlc to he in-
cluded in the appellant's total income under s. 16 (3)(a)(iiil; since thr 
monetary value of the shares gifted to the wife at the time when the gift 
was made w:is on1v Re;. 6?.730, the interest attributable to it v.·orkcd out at 
Rs. 4, I 3R and onlv this amount could be included in the appellant's in-
come. 
The Appellate Tribunal dismissed the appellant's further appeal 
and also allowed cross appeals filed by the Depanment. · The High Court. 
upon a reference. held that the sum of Rs. 70.860 was prope·lv included 
in the apne11ant's income. in t 957-58 but that the interCSt amount in 
excess of Rs. 4.138 was not liahlc to be included in his income for 1958-
59 and 1959·60. 
In the appeal to this Court the onlv question for c.onsideration was 
whether the amount of Rs. 70,860 was the aopellant's inccmc under s. 16 
(3) (a)(iii). It was contended on his behalf (i) that what come< within 
the ambit of s, 16(3)(a) (iii) is the income from the transferred assel8. 
which is different from the profits or Jr.tins arising from the sale of the 
transferred assets. or in other words "the capital gains" from the trans-
ferred asset<; and 
(ii) thats. 16(3)(a)(iii) was enacted in 1937 when 
the word 'income' did not include 'capital gains' and income from the 
property w"5 understood to be income falling under that head in s. 6 of 
the Act. 
HELD : 
The Hioh Court had ri•htlv decided that the amount 1'f 
R<. 70.860 was properly included in the as.essee's income under s. 16 
0) (a) (iii). 
A 
B 
c 
D 
E 
F 
G 
H 
B 
c 
D 
E 
F 
G 
II 
MANEKLAL v. c.J.T. (Ramaswami, J.) 
361 
(i) There is no logical distinction between income arising from the 
asset transferred to the wife and arising from the sale of the asset~ 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 
"1le. [364 G-H] 
(ii) Although at the time whens. 16(3)(a)(iii) was enacted the defi-
nition of 'income' did not include 'capital gains', capital gains having been 
brought within the meaning of 'income' in s. 
2( 6C), 
the 
expression 
'income' as used in s. 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 s. 16(3) (a) (iii) 
of the Act to suggest that capital gains ·are. excluded from its scope and 
there is no reason why a restricted interpretation should be giYen to the 
provision' of s. 16(3) (a) (iii). [365 C-E] 
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2454 of 
1966. 
Appeal from the judgment and order

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