Income Tax Appellate Tribunal - Delhi
Smt. Trishla Jain vs Dy. Commissioner Of Income-Tax on 3 August, 1990
Equivalent citations: [1990]34ITD523(DELHI)
ORDER
M.A. Bakshi, Judicial Member
1. These six appeals involving common grounds are consolidated and disposed of by this order for the sake of convenience. All the six assessees are Non-resident Indians settled abroad. For the assessment year 1987-88, the assessee disclosed income from interest on debentures of M/s Oswal Agro Mills Ltd., on receipt basis.
2. The assessees have also derived income as short term capital gains as well as long term capital gains on sale of equity shares of M/s Oswal Agro Mills Ltd. There is no dispute in regard to long term capital gains. Its computation as well as levy of tax at a rate of 20% Under Section 115E has been accepted by the Revenue. The dispute in regard to short term capital gains on sale of equity shares of M/s Oswal Agro Mills does not relate to its computation but to the rate of tax and manner of assessment. Assessees claim that concessional rate of tax at 20% is applicable under Chapter XII-A of the Income-tax Act, 1961. The Assessing officer has rejected the claim of the assessee in this regard and has imposed the tax at normal rates as applicable under the Finance Act of 1987. The CIT(A), Faridabad, has dismissed the appeals filed by the assessees and the order of the Inspecting Assistant Commissioner of Income-tax (Assessment) Faridabad, have been confirmed in respect of all the six assessees.
3. The learned counsel for the assessee Shri Mohan Lal contended that concessional rate of tax at 20% is applicable on the income from short term capital gains Under Section 115E in respect of all the six assessees and that the assessing officer has unjustifiably rejected the claim of the assessee. Our attention was drawn to Section 115E which provides for the levy of tax @ 20% in respect of Non-resident Indians on investment income or income by way of long term capital gains or both. The learned counsel contended that investment income is defined Under Section 115C to mean as any income derived from a foreign exchange asset. Since the shares from M/s Oswal Agro Industries Ltd., had disputedly been purchased in convertible foreign exchange, the said equity shares constituted foreign exchange assets within the meaning of Section 115C. On the sale of these equity shares to Unit Trust of India, assessee has derived income from the said asset which is an foreign exchange asset. As such the income derived from the short term capital gains on sale of equity shares falls within the definition of investment income as defined Under Section 115C(c), it was contended. The learned counsel invited our attention to the decision of the Hon'ble Supreme Court in the case of Sevantilal Maneklal Sheth v. CIT [1968] 68 ITR 503 for the proposition that there is no logical difference between income arising from assets and income arising from the sale of asset. Relying on the said decision of the Supreme Court, it was contended that the income by way of short term capital gains was derived from the investment asset on the sale of the said asset. Since the capital gains arising from the sale of the asset is deemed to be income Under Section 2(24)(vi), the said income falls within the definition of investment income derived from a foreign exchange asset and accordingly qualifies for concessional rate of tax Under Section 115E, learned counsel contended.
4. Referring to the observation of the assessing officer with regard to circular issued by Reserve Bank of India bearing No. AD (MA Series) Circular No. 4 dated 11-2-87 circulated by the Central Board of Direct Taxes, the learned counsel contended that any interpretation by a non-statutory body cannot be relied upon by the revenue authorities for imposing tax obligations upon the assessees. It was accordingly contended that the concessional rate of tax Under Section 115E may be directed to be applicable to the assessees in respect of short term capital gains @ 20%.
5. The learned Departmental Representative, on the other hand, contended that the assessee is not entitled to the concessional rate of tax Under Section 115 E as is evident from the language used in the said section. The learned Departmental Representative argued that the words 'long term capital gains' have specifically been used in Section 115E and short term capital gains by necessary implication had been excluded from the applicability of the said provisions. It is claimed that if the Legislature intended to grant the benefit of concessional rate of tax on short term capital gains then the words 'short term capital gains' would have been separately included in Section 115E along with the words long term capital gains'. Since long term capital gains has specifically been included in Section 115E, by necessary implication short term capital gains is excluded learned Departmental Representative contended. It was further argued that if the interpretation can vassed on behalf of the assessee regarding the meaning of investment income is accepted the use of words 'long term capital gains' would become redundant. Such an interpretation is not possible according to the Departmental Representative. Referring to the Bombay High Court decision in the case of Manubhai A. Sheth v. N.D. Nirgudkar, Second ITO [1981] 128 ITR 87 where it was held that gains on sale of agricultural land constitutes agricultural income and accordingly not liable to tax, learned Departmental Representative contended that in the belowmentioned cases, High Courts of Karnataka, Kerala and Gujarat have taken contrary view :
(i) CIT v. B.S. Rajendrappa [l986] 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.) It was accordingly urged that the orders of the assessing officers as well as of the CIT(A) may be confirmed, and the appeals of the assessees dismissed.
6. In reply to the points raised by the Departmental Representative, the learned counsel for the assessee contended that the mere fact that the long term capital gains has been specifically included in Section 115E it would not follow that short term capital gains have been excluded from the purview of Section 115E. Since short term capital gains fall within the definition of investment income, there was no necessity for Legislature to separately include the words short term capital gains' in Section 115E. According to the learned counsel since long term capital gains are to be determined in accordance with the special provisions of the Act and deductions are permissible Under Section SOT of the Act it could be the reason for the use of separate expression in respect of long term capital gains in Section 115E. Regarding the decision of the Karnataka, Kerala and Gujarat High Courts, the learned counsel contended that the decisions of Bombay High Court in the case of ManubhaiA. Sheth (supra), Delhi High Court in the case of DL.F. United Ltd. v. CIT [1986] 161 ITR 714, Andhra Pradesh High Court in the case of/. Raghattama Reddy v. 770 [1987] 35 Taxman 298/[1988] 169 ITR 174 had been cited before the CIT(A) in support of the view that capital gains on sale of agricultural land is agricultural income and accordingly not liable to tax. On the same analogy, learned counsel contended, that the income derived from the sale of foreign exchange asset is income from the asset and accordingly investment income within the meaning of Section 115C(c) of the Income-tax Act, 1961. Thus the concessional rate as applicable Under Section 115E is available to the assessees in respect of short term capital gains, it was urged.
7. We have given our careful consideration to the rival contentions. Under Section 115E, where the total income of theassessee, being a non-resident Indian, consists only of an investment income or income by way of long term capital gains or both, the tax payable by him on his total income would be the amount of income-tax calculated on said total income @ 20% of such income. Section 115C defines "convertible foreign exchange", "foreign exchange asset" and "investment income" as under:
'Convertible foreign exchange' means foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for the purposes of the Foreign Exchange Regulation Act, 1973 (46 of 1973) and any ' rules made thereunder.
'Foreign Exchange Asset' means any specified asset which the assessee has acquired or purchased, with, or subscribed to in convertible foreign exchange.
'Investment income' means any income derived from a foreign exchange asset.
There is no dispute with regard to the nature of the asset as being that of a foreign exchange asset as the equity shares had been purchased in convertible foreign exchange. There is also no dispute with regard to the income, earned from this foreign exchange asset till its sale, to be that of an investment income. The dispute is with regard to the nature of income derived on the sale of the said equity shares. The claim of the assessee is that the income has been derived from the foreign exchange asset and accordingly it is investment income qualifying for concessional rate of tax of 20% Under Section 115E. Thus the real issue in this case is as to whether the short term capital gain is derived from the foreign exchange asset. If it is so short term capital gain derived from the foreign exchange asset, would be investment income within the meaning of Section 115E.
8. Section 2(24) of the Income-tax Act defines income, and by virtue of Clause (vi) ibid income includes any capital gains chargeable Under Section 45. Section 45 of the Act provides that any profits or gains arising from the transfer of capital asset shall be deemed to be the income of the previous year in which the transfer took place. Thus the capital gains arising from the transfer of the capital asset are deemed to be the income of the previous year by virtue of Section 45 read with Section 2(24)(vi) of the Income-tax Act, 1961. Thus undoubtedly the short term capital gains fall within the definition of income Under Section 2(24)(vi) of the Income-tax Act, 1961. Now we have to examine as to whether the income (short term capital gains) is derived from the asset or it arises from a source different from the asset itself. In the case of Sevantilal Maneklal Sheth (supra) their Lordships of the Supreme Court have held as under:
In our opinion, 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 gains is made to arise out of the asset is the operation of the sale. If the asset is employed, say by way of investment, income is produced 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.
Applying the ratio of the above noted decision of the Hon'ble Supreme Court, we have no difficulty in holding that the short term capital gain is the income derived from the foreign exchange asset equity shares purchased by the assessees from Oswal Agro Mills Ltd. As already stated, there is no dispute that the equity shares held by the assessees prior to its sale were purchased in convertible foreign exchange and were specified foreign exchange assets. Thus the short term capital gains derived from foreign exchange assets would fall within the definition of investment income as defined in Section 115C(c) of the Income-tax Act, 1961. That being so, assessee would be entitled to the levy of concessional rate of tax @ 20% Under Section 115E. The decision regarding agricultural income relied upon by the assessee as well as by the revenue are, in our view, irrelevant to the issue involved in this case. We would like to point out that the Delhi High Court which is the jurisdictional High Court in this case has decided the issue regarding the levy of tax on sale of agricultural land on the basis of definition of capital asset Under Section 2(14) of the Income-tax Act, 1961. It has been held in D.L.F. United Ltd.'s case (supra) that the agricultural land is not included in the definition of capital asset and accordingly there is no question of any income being assessable to tax by virtue of Section 2(24)(vi) as the sale of agricultural land would be outside the purview of the capital gains. The contention on behalf of the assessee that the decision of the Bombay High Court in the case of Manubhai A. Sheth (supra) may be followed and the capital gains may be declared as agricultural income and not liable to tax was not accepted by the Delhi High Court. As such the decision of the Delhi High Court in the case of DL.F. United Ltd. (supra) and DLF. Housing & Construction (P.) Ltd. v. CIT [1983] 141ITR 806 are not applicable to the facts of this case.
9. The contention of the learned Departmental Representative that the long term capital gains having been specifically included in Section 115E, the short term capital gains must be held to have been excluded from the purview of Section 115E is also not well founded. Since the short term capital gains falls within the definition of in vestment income, there is no warrant for such inference. In the case of sale of long term capital asset, assessee is given an option to invest in whole or any part of the net consideration in any specified asset etc. so as to avoid payments of tax. This is provied Under Section 115F. The fact that there is no obligation for the persons responsible for payment of interest etc., to deduct taxes on short term capital gains, would also not warrant the inference that the short term capital asset does not fall within the definition of investment income Under Section 115E. Since the language of the relevant provisions of the Act is unambiguous we cannot unnecessarily resort to investigation and determination of intention of the Legislature on the basis of speech of the Finance Minister. It is well settled principle of law that when the language of the Statute is unambiguous, the speech of the Finance Minister is irrelevant. The intention of the Legislature can be investigated and looked into only where language of the Statute is ambiguous. In construing fiscal statistics and in determining the liability of a subject to tax even if two reasonable views are possible, one that favours the subject has to be adopted as held by their Lordships of the Supreme Court in the case of CIT v. Kulu Valley Transport Co. (P.)Ltd. [1970] 77 ITR518. Since, however, in our view, the language of the Statute is unambiguous and that the short term capital gains falls within the definition of "investment income" we hold that the assessees are entitled to concessional rate of tax @ 20% on short term capital gains being investment income within the meaning of Section 115E read with Section 115C.
10. The next ground of appeal relates to assessment of interest income on debentures. The assessees have disclosed the interest on receipt basis whereas the assessing officer has assessed the income on accrual basis. The CIT(A) has confirmed the decision of the assessing officer in assessing the income from interest on debentures on the basis of accrual by relying on the decision of Madras High Court in the case of CIT v. Standard Triumph Motor Co. Ltd. [1979] 119 ITR 573.
11. The learned counsel for the assessee contended that assessee has shown interest for the preceding year received during this year on receipt basis. The assessing officer has not only assessed the income in respect of the preceding year but has also assessed the interest on accrual basis which is uncalled for. The learned counsel contended that the interest on debentures can be assessed on accrual basis or on receipt basis. In this case, the assessee has disclosed the interest on receipt basis. The assessing officer was wrong in assessing the income on accrual basis, it was contended.
12. The learned Departmental Representative supported the orders of revenue authorities.
13. We have given our careful consideration to the rival contentions. Assessees had disclosed interest income on debentures from Oswal Agro Mills Ltd. at Rs. 52,833 in each case. This interest related to the period 1-7-85 to 31-12-85. The assessing officer, apart from assessing the income disclosed by the assessee has assessed a sum of Rs. 1,61,315 in each case as interest accrued. The CIT(A) has confirmed this addition by following the decision of Madras High Court in the case of Standard Triumph Motor Co. Ltd. (supra). Assessees are admittedly non-residents and Under Section 5 income from whatever source derived, which is received or is due to be received in India by or on behalf of such non-resident is includible as income of the non-resident. Similarly income from whatever source which accrues or arises is due to accrue or arise to the non-resident in India during such year is also includible as the total income of the previous year of the non-resident. Section 5(2) of the Income-tax Act, 1961 reads asunder:
Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which -
(a) is received or is deemed to be received in India in such year by or on behalf of such person; or
(b) accrues or arises or is deemed to accrue or arise to him in India during such year.
In the case of Standard Triumph Motor Co. Ltd. (supra), the question with regard to assessment of royalty receivable from Indian company under collaboration agreement came up for consideration of the Hon'ble High Court of Madras. Assessee claimed the assessment on cash basis whereas the revenue contended that the assessment in the case of non-resident was to be made on accrual basis. Upholding the contention of the revenue the Madras High Court in the aforementioned case held that the method of accounting adopted by the non-resident is irrelevant and that the income was assessable on accrual basis. No contrary decision has been brought to our notice on the point. Respectfully following the decision of the Madras High Court in the case of Standard Triumph Motor Co. Ltd. (supra) we hold that the income from interest on debentures of M/s Oswal Agro Industries Ltd. is assessable on accrual basis in respect of all the six assessees.
14. Coming to the contention of the learned counsel for the assessee that in such eventuality the income disclosed on cash basis has got to be excluded, we find merit in it. Since we do not have the details of calculation of accrued interest, we remit this issue to the file of the assessing officer with the direction that the interest from debentures may be assessed in the hands of assessee on accrual basis only. The interest disclosed by the assessee on receipt basis shall be excluded. The assessing officer should also consider the claim of the assessee regarding the sale of shares during the year in appeal. It was contended before us that the interest on debentures accrued biannually. The interest for the period ending June 1986 had admittedly accrued during the year in appeal. However, since some of the shares have been sold on 19th November, 1986, the interest due on 30th December, 1986, according to the learned counsel for the assessee would not accrue during the year as the assessee had sold the shares before the right to receive the interest accrued. The assessing officer is directed to consider the claim of the assessee while determining the amount of interest accrued during the year in appeal in respect of all the six assessees. The appeals of the are partly allowed.