Calcutta High Court
Commissioner Of Income-Tax vs Assam Consolidated Tea Estates Ltd. on 24 September, 1986
Equivalent citations: [1987]167ITR215(CAL)
JUDGMENT Dipak Kumar Sen, J.
1. Assam Consolidated Tea Estates Limited, the assessee, is a non-resident sterling company incorporated in the United Kingdom. On April 1, 1957, another sterling company was incorporated also in the United Kingdom under the name and style of Assam Consolidated Tea Estates (India) Limited as a 100% subsidiary of the assessee. An agreement was entered into by and between the assessee and the subsidiary on April 1, 1957. It was recorded in the said agreement, inter alia, that the subsidiary had been incorporated with the principal object of acquiring the undertaking and business of the assessee of its tea estates situated in India with all assets and liabilities thereof.
2. The other terms and conditions of the said agreement were, inter alia, that--
(a) the assessee would sell and transfer and the subsidiary would purchase and take over on and from April 1, 1957, the tea estates of the assessee in India known as Bhamun, Hesam, Hingrijan, Khowang and Tinkong Estates;
(b) The consideration for the said sale would be, subject to adjustment as provided, a sum of 6,77,000.
(c) The said consideration of 6,77,000 would be satisfied to the extent of 4,77,000 by the issue to the assessee of 4,77,000 ordinary shares of 1 each of the increased capital of the subsidiary credited as fully paid-up at par and 2,00,000 by the issue to the assessee of fully paid-up redeemable unsecured loin stock of the subsidiary of 2,00,000 bearing interest at the rate of 6% per annum.
(d) The said consideration would be subject to adjustment in respect of items mentioned in Part III of the Schedule to the said agreement according to the amounts of such items in the books of accuunt as if the date of sale and such adjustment would be effected by payment in cash by the parties inter se as required.
3. Pursuant to the aforesaid, the assessee transferred and conveyed to the subsidiary the said tea estates and the subsidiary issued to the assessee shares of the former as agreed. The subsidiary also issued in favour of the assessee, the said redeemable unsecured loan stock under an instrument dated April 16, 1957. It was recorded in the said instrument, inter alia, that by a resolution of the board of directors of the subsidiary dated April 16, 1957, unsecured loan stock carrying interest at the rate of 6% per annum had been created. It was further recorded that (a) the said stock was limited to 2,00,000, (b) the stock would be issued to such persons and at such time or times and on such terms as the directors of the subsidiary would determine provided that the public would not be invited to subscribe for the said stock nor any application would be made to any stock exchange in the United Kingdom for permission to deal with the said stock or that such stock would be quoted in the stock exchange, (c) the stock would be transferable in multiples of 1.
4. The assessee was assessed to income-tax for the assessment years 1966-67, 1967-68, 1968-69 and 1969-70, the relevant accounting years ending on 31st December of the calendar years 1965, 1966, 1967 and 1968 respectively. The Income-tax Officer found that the only income of the assessee in India was the interest received by the assessee from its subsidiary from the said redeemable unsecured loan stock. It was contended by the assessee that the interest received against the said stock was not the assessee's income accruing or arising in India. The Income-tax Officer did not accept the said contention and following the assessments of the .assessee made in the earlier assessment years 1959-60 to 1964-65 treated the said interest as income of the assessee arising or accruing in India and brought it to tax.
5. Being aggrieved by the assessment, the assessee preferred a consolidated appeal against the said assessments for the said assessment years before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner found that against the earlier assessments for the said assessment years 1959-60 to 1964-65, the assessee had also preferred appeals before the Appellate Assistant Commissioner. Those assessments were, however, confirmed by the Appellate Assistant Commissioner. The assessee had preferred further appeals before the Income-tax Appellate Tribunal against the order of the Appellate Assistant Commissioner and the Tribunal by its order dated January 8, 1973, had accepted the contentions of the assessee and allowed the appeals holding that the income of the assessee arising out of the interest payable on the unsecured redeemable loan stock was not assessable under Section 9(1)(i) of the Income-tax Act, 1961. Following the said decision of the Tribunal, the Appellate Assistant Commissioner allowed the appeals of the assessee against the subsequent assessments.
6. Being aggrieved, the Revenue preferred a further appeal before the Income-tax Appellate Tribunal against the order of the Appellate Assistant Commissioner. The Tribunal followed its earlier order in the case of the assessee in respect of the earlier assessment years and dismissed the appeals of the Revenue. The Tribunal noted that no fresh materials had been brought to light in the subsequent assessment years.
7. On an application of the Revenue under Section 256(1) of the Income-tax Act, 1961, the following question has been referred by the Tribunal, as a question of law arising out of its order, for the opinion of this court:
"Whether, on the facts and in the circumstances of the case, and on a correct interpretation of the agreement dated April 1, 1957, the Tribunal was right in "holding that the interest on unsecured loan stock was not covered by the provisions of Section 9(1)(i) of the Income-tax Act, 1961, and was, therefore, not liable to assessment ?"
8. At this stage, it may be convenient to refer to the earlier order of the Tribunal dated January 8, 1973, passed in the case of the assessee in respect of the earlier assessment years which the Tribunal followed in the instant case. In the earlier proceedings, it was contended on behalf of the assessee before the Tribunal that there were two transactions- by and between the assessee and its subsidiary. One of the transactions was a sale and the other was in respect of satisfaction of liability of the subsidiary in respect of the consideration of the sale. It was further contended that there was no business connection in India between the assessee and its subsidiary after the sale was effected and the source of income after the sale was only the loan stock. It was submitted that even the dividend on the shares of the subsidiary issued to the assessee had not been considered taxable in the hands of the assessee. It was contended that the income, namely, the interest payable under the loan stock did not arise through or from any property in India or through or from any asset or source of income in India. It was further submitted that there was no money lent on interest and brought to India in cash or kind. The transfer of the assets by the assessee to the subsidiary was entirely on a business consideration and the obligation to pay interest on the loan stock had nothing to do with any property in India or the activities of the subsidiary in relation to the tea estates.
9. It was contended on behalf of the Revenue that it was not the case of the Revenue that the transaction was a colourable one. It was, however, submitted that the entire transaction between the assessee and its subsidiary should be considered as one. It was contended further that the loan stock or shares were issued to the assessee only because the properties of the assessee in India were transferred to the subsidiary and payment of interest against the loan stock was connected with the activities of the subsidiary in India in respect of the said tea estates. It was also contended that the source of income was the activity of the subsidiary in India and that the income by way of interest arose indirectly from the transfer of the tea estates in India and but for such transfer, no interest would be payable.
10. The Tribunal considered and construed the agreement dated April 1, 1957, on the basis of which transactions were had between the assessee and its subsidiary. The Tribunal also noted the relevant terms of the instrument dated April 16, 1957, executed by the subsidiary for the purpose of issue of the loan stock. Following the decision of the Supreme Court in CIT v. R.R. Ramakrishna Pillai [1967] 66 ITR 725, the Tribunal held that the transaction between the assessee and its subsidiary comprised of two transactions, the first being the sale of the tea estates and the second being the transactions regarding the satisfaction of the liability to pay the consideration. The Tribunal held that the issue of the said loan stock to the assessee by its subsidiary had to be considered as a separate transaction.
11. The Tribunal held further that there was no dispute that the first transaction, viz., the sale of the tea estates by the assessee to its subsidiary, had been established. It was further established that the payment and receipt of interest against the loan stock were in England.
12. The Tribunal noted that under the terms and conditions on which the loan stock was issued, the interest was not made payable by the subsidiary out of profits of the tea estates. Such liability was absolute irrespective of any profit being made. The Tribunal also noted that the loan stock was transferable. The Tribunal came to the conclusion that the liability to pay interest arose only out of the issue of the loan stock and was not dependent on anything else. The Tribunal found that in the transactions no money had been lent by the assessee on interest nor had any money been brought into India in cash or kind.
13. The Tribunal found further that the activities of the subsidiary In respect of the tea estates of India had nothing to do with the interest payable by the subsidiary to the assessee and, therefore, the payment of interest was found to be unconnected with the activities of the subsidiary in India. The Tribunal noted the decision of the Supreme Court in CIT v. R.D. Aggarwal & Co. [1965] 56 ITR 20 and held that as the assessee did not carry on any business yielding profit or gain in which there was some activity of the assessee in the taxable territory which contributed directly or indirectly to the earning of the profit or gain and as there was no connection or continuity between the business of the assessee and any activity in the taxable territories, there was no business connection of the assessee in India within the meaning of Section 9(1)(i) of the Income-tax Act, 1961. The Tribunal noted that there was no connection between the activities in the taxable territory and the business of the assessee or the income arising therefrom. The Tribunal held that the assessee and its subsidiary were distinct entities and the activities of the subsidiary alone could not constitute a business connection of the assessee in India. The Tribunal had allowed the appeals of the assessee for the said earlier assessment years.
14. At the hearing before us, learned advocate for the Revenue reiterated the submissions made on behalf of the Revenue in the proceedings below. Learned advocate also drew our attention to the following sections of the Income-tax Act, 1961 :
" Section 2(47) ' transfer ' in relation to a capital asset, includes the sale, exchange or relinquish men t of the asset or the extinguishment of any rights therein or the compulsory acquisition thereof under any law."
" Section 9. (1) The following incomes shall be deemed to accrue or arise in India--
(i) all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through or from any money lent at interest and brought into India in cash or in kind or through the transfer of a capital asset situate in India."
15. Learned advocate submitted that the facts found in the instant case brought the assessee squarely within the mischief of Section 9 of the Act of 1961. It was submitted that the interest had accrued to the assessee through its business connection in India. Such business connection was by and between the assessee and its subsidiary who were closely associated and the subsidiary was admittedly doing business in India by running the tea estates. The said tea estates could be held to be under the control of the assessee through its subsidiary.
16. Learned advocate next submitted that interest had accrued or arisen in favour of the assessee through the tea estates which were properties situated in India. The said properties were also the source from which interest accrued to the assessee and such source was in India. He submitted that interest was being paid out of profits in India made by the subsidiary out of the tea estates.
17. Learned advocate next submitted that the said tea estates having been exchanged by the assessee, inter alia, against loan stock, the transaction amounted to a loan granted by the assessee to its subsidiary. As the consideration of the loan were the tea estates situated in India, it must be held that the loan had been brought to India.
18. Learned advocate next contended that, in any event, income by way of interest had accrued or arisen in favour of the assessee through the transfer of capital assets in India. Learned advocate finally submitted that the subsidiary was claiming deduction of the interest which was being paid by the subsidiary to the assessee and, therefore, such interest should be treated as income of the assessee in India and that the entire transaction was a device to avoid tax and should not be upheld by this court.
19. In support of his contentions, learned advocate for the Revenue cited the following decisions:
(a) CIT v. Bombay Trust Corporation Ltd. [1936] 4 ITR 323 (PC). In this case, the assessee, a company, had borrowed substantial sums of money from a foreign bank which were retained by the assessee in fixed deposit. The interest paid by the assessee on the amounts was treated as income of the foreign bank in the hands of the assessee as agent of the former till 1926. In 1927, the assessee repaid the loan to the foreign bank, butagain borrowed a substantial sum of money from another foreign bank which was associated with the first foreign bank. The interest payable on the subsequent loan was sought to be assessed in the hands of the assessee as the agent of the first foreign bank as the income of the latter. On these facts, it was held by the Privy Council that the income-tax authorities had no evidence to hold that the first foreign bank had received profits and gains from the assessee in respect of the subsequent loan, and, therefore, could not be assessed in respect of the same.
(b) Bank of Chettinad Ltd. v. CIT [1940] 8 ITR 522 (PC). In this case, two banks--one registered in British India and the other registered in an Indian State--were under the control of one person. The Indian bank had branches at Rangoon in British India and also branches in the Malay State. The bank registered in the Indian State also had a branch in Malay. A loan was advanced by the Malay branch of the bank registered in the Indian State to the Malay branch of the bank registered in British India. The Malay branch of the bank registered in British India lent the amount so received from the other bank at Malay to its Rangoon branch. The bank registered in British India was assessed under Section 42 of the Indian Income-tax Act, 1922, as an agent of the bank registered in the Indian State in respect of the interest received by the latter on the loans advanced to the bank registered in British India. The assessment was affirmed by the Privy Council and it was held that the bank registered in the Indian State had a business connection with the bank registered in British India in the relevant assessment years and that profits and gains accrued to the bank registered in the Indian State directly or indirectly through such business connection even though the loans were made and were to be repaid in Malay outside British India.
(c) Caltex (India) Ltd. v. CIT [1952] 21 ITR 278 (Bom). In this case, the assessee, incorporated outside India, dealt in petroleum products and sold its products in India. Another company, also a non-resident company, held all the shares of the assessee. The assessee made profits in British India out of which dividends were declared and paid to the other nonresident company. The dividend paid to the other non-resident company was assessed as its income in the hands of the assessee as the statutory agent of the other non-resident company.
On these facts, it was held by a Division Bench of the Bombay High Court that the profits made by the assessee and the dividend declared by it out of such profits were from the self same source. The dividend receivable by the other non-resident company was assessable as the income of the former in the hands of the assessee. It was further held that the dividend declared by the assessee were income, profits or gains arising directly from the source of income in British India within 'the meaning of the third head of Section 42(1) of the Indian Income-tax Act, 1922, namely, income, profits or gains arising directly or indirectly through any asset or source of income in British India.
(d) CIT v. Lady Kanchanbai . In this case, the Supreme Court in its judgment quoted with approval, an observation of the Privy Council as follows (p. 126):
"In Rhodesia. Metals Ltd. v. Commissioner of Taxes [1941] 9 ITR (Suppl) 45 (PC), the Judicial Committee observed that ' source ' means not a legal concept but which a practical man would regard as a real source of income. There is hardly any room for doubt, nor was it contended otherwise--that the business of the assessee in Madhya Bharat constituted a separate source or sources."
20. In support of his contention that the transaction between the assessee and its subsidiary was only a device to avoid taxes, learned advocate for Revenue cited the following decisions :
(a) In re The Central Talkies Circuit [1941] 9 ITR 44 (Bom);
(b) CIT v. Smt. Asrafi Devi Rajgharia ;
(c) McDowell and Co. Ltd. v. CTO .
21. Learned advocate for the assessee contended, on the other hand, that on the facts found in the present reference, it must be held that the transaction between the assessee and its subsidiary, in effect, consisted of two separate transactions, the first being a transaction of sale and the other being a contract under which the loan stock issued by the subsidiary was accepted by the assessee in satisfaction of the liability to pay the price. It was not in dispute that sale of the tea estates by the assessee to its subsidiary had taken place and it was also found that the consideration for the said sale has been agreed to be satisfied by the subsidiary partly by issue of shares and the balance by issue of unsecured redeemable loan stock. The subsidiary has undertaken the liability to redeem the said loan stock ultimately and to pay 6% interest till redemption.
22. Learned advocate for the assessee relied on the further facts found by the Tribunal, namely--
(a) Both the assessee and its subsidiary were incorporated in the United Kingdom.
(b) The payment and receipt of interest were both in England.
(c) The liability of the subsidiary to pay interest under the loan stock was absolute and without any reference to any profit being made by the subsidiary out of the tea estates in India. The said loan stock was transferable and the liability to pay interest thereon would remain whether the tea estates continued to be owned by the subsidiary or otherwise.
23. Learned advocate, therefore, contended that there was no basis for holding that the interest payable on the said loan stock arose through or from any property or source in India.
24. Learned advocate for the assessee next contended that on the facts it could not be held that the income by way of interest arose or accrued to the assessee from any business connection in India. It has not been found that the assessee, a non-resident company, carries on any activity in the nature of business whatsoever in India. The only activity in India was by the subsidiary. It has been found that the assessee and its subsidiary were distinct entities and the activity of one could not constitute the activity of the other. There was no connection between the activity of the subsidiary in the taxable territory and the business of the assessee. There was no finding that the subsidiary is acting as an agent of the assessee in running the said tea estates.
25. Learned advocate for the assessee next submitted that there was no finding that in the said transaction between the assessee and its subsidiary, any money had been lent by the assessee to its subsidiary or that such money had been brought into the taxable territory in India in cash or in kind. The assets namely, the tea estates, were all along in India and remained in India even after the transaction.
26. Learned advocate for the assessee submitted last that the said interest arising from the loan stock cannot also be deemed to accrue or arise in India through the transfer of a capital asset situate in India. He submitted that the words "or through the transfer of a capital asset in India" were included in Section 42(1) of the Indian Income-tax Act, 1922 (which corresponded to Section 9 of the present Act of 1961) in 1947, when, for the first time, Section 12B was introduced in the Indian Income-tax Act, 1922, imposing a tax on capital gains under the Income-tax and Excess Profits Tax (Amendment) Act, 1947. He submitted that under Section 42(1) of the Act of 1922 and by Section 9 of the present Act of 1961, it was intended that capital gains arising from the transfer of a capital asset, whether movable or immovable, situate in India at the time of the transfer should be taxed. The said clause would only come into operation where by reason of transfer of a capital asset, capital gains accrued to the transferor.
27. Learned advocate submitted that the transaction relating to the redeemable loan stock was a transaction distinct from the transaction of sale of the tea estates and the liability to pay interest arose under the said loan stock and had nothing to do with the transfer of the tea estates which were the subject-matter of a separate transaction. The source of the interest was the loan stock and not the tea estate or the transfer thereof and, therefore, interest arising from the loan stock cannot be deemed to accrue or arise through the transfer of a capital asset in India. In support of his contentions, learned advocate for the assessee cited the following decisions:
(a) CIT v. Currimbhoy Ebrahim & Sons Ltd. [1935] 3 ITR 395 (PC). In this case, the assessee who carried on business in Bombay obtained a loan of rupees fifty lakhs from the Nizam of Hyderabad. The assesse undertook to pay interest on such loan at Hyderabad and repay the principal amount in five years. The assessee furnished security in favour of the Nizam consisting of shares in joint stock companies and immovable properties in India. The mortgage of the immovable properties was effected by deposit of title deeds. The Nizam was entitled to appoint one or more representatives to look after and protect his interest in the secur-rities and the assessee agreed to pay the remuneration of such representatives. On these facts, it was held by the Privy Council that the loah granted by the Nizam to the assessee was an isolated transaction. As it was not found that the Nizam had any direct or indirect interest in the assessee and as there was no evidence of a course of dealings between the parties, no business connection was established between the Nizam and the assessee who was sought to be taxed in India as an agent of the Nizam under Section 42(1) of the Indian Income-tax Act, 1922. It was also noted that it was not proved that the Nizam was carrying on the business of money-lending either in Hyderabad or British India. It was held further that the interest of the Nizam in the security as a mortgagee did not constitute property within the meaning of Section 42(1) of the Act of 1922.
(b) CIT v. R.D. Aggarwal & Co. . In this case, the Supreme Court considered and construed Section 42(1) of the Indian Income-tax Act, 1922, and observed as follows (p. 24):
"A business connection in Section 42 involves a relation between a business carried on by a non-resident which yields profits or gains and some activity in the taxable territories which contributes directly or indirectly to the earning of those profits or gains. It predicates an element of continuity between the business of the non-resident and the activity in the taxable territories: a stray or isolated transaction is normally not to be regarded as a business connection. Business connection may take several forms : it may include carrying on a part of the main business or activity incidental to the main business of the non-resident through an agent, or it may merely be a relation between the business of the non-resident and the activity in the taxable territories which facilitates or assists in the carrying on of that business. In each case, the question whether there is a business connection from or through which income, profits or gains arise or accrue to a non-resident must be determined upon the facts and circumstances of the case.... Income not taxable under Section 4 of the Act of a non-resident becomes taxable under Section 42(1) if there subsists a connection between the activity in the taxable territories and the business of the non-resident, and if through or from that connection income directly or indirectly arises. "
(c) CIT v. R.R. Ramakrishna Pillai . This decision of the Supreme court was cited for the following observations (p. 729):
"A person carrying on business may agree with a company floated by him that the assets belonging to him shall be transferred to the company for a certain money consideration and that in satisfaction of the liability to pay that money consideration, shares of a certain face value shall be allotted to the transferor. In that case, there are in truth two transactions--one a transaction of sale and the other a contract under which shares are accepted in satisfaction of the liability to pay the price."
(d) CIT v. National & Grindlays Bank Ltd. [1969] 72 ITR 121 (Cal). In this case, the Calcutta Electric Supply Corporation, to meet its liability incurred in connection with the building of a generating station in Calcutta, repayable within 18 months, obtained a temporary financial accommodation from the National & Grindlays Bank Ltd, by way of an overdraft. The bank was sought to be assessed on the interest received from the Corporation in the relevant assessment years. It was contended that pursuant to the said loan, money had been brought into India in kind in the shape of machinery and generators for the purpose of setting up the generating stations within the meaning of Section 42(1) of the Indian Income-tax Act, 1922, though the overdraft was granted to meet the contractual liability to repay the outstandings already incurred. On these facts, it was held by a Division Bench of this court that the money having been advanced by the bank in London and as the interest earned was payable in London and as no part of the money had been brought into India in cash or in kind, the interest on the loan could not be taxed under Section 42(1) of the Act of 1922. It was noted that the goods or commodity involved had been despatched to and installed in India long before the loan was obtained and the price of the said goods or commodity remained to be paid in the U.K.
(e) CIT v. Gillanders Arbuthnot & Co. . In this case, the Supreme Court reiterated its observations in its earlier decision in CIT v. R.R. Ramakrishna Pillai . The said observations have been noted hereinbefore.
(f) CIT v. Toshoku Ltd. . This decision of the Supreme Court was cited for the following observations (p. 530):
"The effect of Clause (a) of the Explanation to Clause (i) of Sub-section (1) of Section 9 of the Act which provides that in the case of a business of which all the operations are not carried out in India, the income of the business deemed under that clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India. If all such operations are carried out in India, the entire income accruing therefrom shall be deemed to have accrued in India. If, however, all the operations are not carried out in the taxable territories, the profits and gains of business deemed to accrue in India through and from business connection in India shall be only such profits and gains as are reasonably attributable to that part of the operations carried out in the taxable territories. If no operations of business are carried out in the taxable territories, it follows that the income accruing of arising abroad through or from any business connection in India cannot be deemed to accrue or arise in India. "
28. The learned advocate for the assessee also cited Blue Star Engineering Co. (P) Ltd. v. CIT [1969] 73 ITR 283 (Bom); Assam Consolidated Tea Estates Ltd. v. ITO ; Carborandum Co. v. CIT ; VDO Tachometer Werke v. CIT [1979] 117 ITR 804 (Kar) and CIT v. Fried Krupp Industries [1981] 128 ITR 27 (Mad). The said decisions do not lay down any new or further principles and need not, therefore, be considered.
29. First to be considered is whether the interest which is being paid by the subsidiary to the assessee against the said loan stock is an income accruing or arising to the assessee through or from any business connection in India. It has not been found that the assessee is carrying on any business in India whatsoever. Previously, the assessee owned and ran the tea estates but the same have been transferred to the subsidiary and in the relevant assessment years the same were owned and run by the subsidiary and not by the assessee which is an entity separate and distinct from the subsidiary. Even otherwise, it has not been found as a fact that the assessee has undertaken any activity in the taxable territory in India in the course of its business. That there is no continuity of any business of the assessee in the hands of the subsidiary had also been established. Therefore, following the decision the Supreme Court in R.D. Aggarwal & Co. [1965] 56 ITR 20, referred to earlier, it must be held that the said interest under the loan stock has not accrued or arisen to the assessee from any business connection in India.
30. Next to be considered is whether the said interest on the loan stock is income accruing or arising to the assessee through or from any property in India or through or from any asset or source of income in India. It has been found that the interest is being paid on the loan stock which have been floated outside India. It has also been found as a fact that the said loan stock is unsecured and no asset or property in India has been given by way of security by the subsidiary to cover the amount repayable under the loan stock or the interest arising therefrom. On the contrary, it has been found as a fact that interest would be payable on the stock whether the subsidiary continues to own and run the tea estate or not.
31. Following the decision of the Supreme Court in R.R. Ramakrishna Pillai [1967] 66 ITR 725, we hold that the transaction in respect of the said loan stock between the assessee and the subsidiary being a transaction separate from the original transaction of sale, it must be held that the interest is accruing and is being paid to the assessee on such stock and such income has not accrued or arisen from any property or asset or source of income in India.
32. Last to be considered is whether the said interest is accruing or arising as income in the hands of the assessee through the transfer of a capital asset situated in India. No doubt, there has been transfer of the tea estate, which is a capital asset situate in India by the assessee in favour of the subsidiary. The said transfer has been made against the consideration which has been quantified. The said transaction of transfer, as we have held earlier, is a transaction separate from the subsequent transaction, namely, the agreement relating to the satisfaction of the consideration by issue of shares and the loan stock by the subsidiary in favour of the assessee. It is obvious that interest will accrue and be paid to the assessee by the transferee every year in respect of the said stock but there is no question of any further transfer of any capital asset between the parties every year. The transfer had already taken place under a separate transaction and the same has become a closed chapter. We accept the contentions made on behalf of the assessee that the expression "through the transfer of a capital asset situated in India " was introduced in Section 9 with the object of taxing capital gains arising out of transfer of such capital assets situated in India. This is a view which has been taken in the commentaries in the recognised and standard text books. The learned advocate for the assessee has drawn our attention to the Law and Practice of Income Tax by Kanga and Palkhivala, 7th edition, volume I, page 205 and Law of Income-tax by Sampath Iyengar, 7th edition, page 694, where the learned authors have taken the same view.
33. For the reason as aforesaid, we hold that the interest payable on the said stock is not income accruing or arising to the assessee through the transfer of a capital asset situate in India.
34. For the reason as aforesaid, the assessee succeeds in this reference. We answer the question referred in the affirmative and in favour of the assessee.
35. There will be no order as to costs.
Monjula Bose, J.
36. I agree.