Mangalore Electric Supply Co. Ltd. Vs.
The Commissioner of Income Tax, West Bengal [1978] INSC 104 (4 May 1978)
CHANDRACHUD, Y.V. ((CJ) CHANDRACHUD, Y.V.
((CJ) DESAI, D.A.
PATHAK, R.S.
CITATION: 1978 AIR 1272 1978 SCR (3) 913 1978
SCC (3) 248
CITATOR INFO :
R 1982 SC 149 (231,249)
ACT:
Income Tax Act, 1922, S. 12 B(1)-Whether the
word 'transfer' occurring, in S. 12 B(1) of the Act refers to voluntary
transfers only-Whether the word transfer should be construed ejusdem generis
with the words 'sale', 'exchange' and requisitions'.
HEADNOTE:
In exercise of its power under Section 4 of
the Madras Electricity Supply Undertakings (Acquisition) Act, 1954, the
Government of Madras acquired the appellants' undertaking and its properties
were taken over on the date of vesting viz. October 15, 1956. As per the option
exercised by the _appellant under S. 6, the, appellant was paid a compensation
of Rs. 18,42,312/ applying Basis 'A' method.
In the course of the appellant's assessment
for the assessment year 1957-58, corresponding to the accounting year
commencing on April 1, 1955 and ending on October 14, 1956, the Income Tax
Officer considered the question whether the compensation received by the
appellant for the acquisition of its undertaking was in the nature of a capital
gain within the meaning of S. 12 B of the Income Tax Act, 1922.
Deducting a sum of Rs. 6.45,710/-
representing the value of fixed assets from the compensation paid by the State
Government to the appellant, the Income Tax Officer treated the sum of Rs.
11,95,602/- as capital gains which was liable to be brought to tax. The
appellant's contention before the appellate Assistant Commissioner that the
compulsory acquisition of its undertaking was riot a 'transfer' within the
meaning of S. 12 B (1) of the Act and therefore, it was not liable to capital
gain tax failed. The Tribunal in further appeal and the High Court on a
reference confirmed the said view. The High Court on an application under
Section 256(2) of the Income Tax Act, 1961, decided against the appellant on
the question whether part of the compensation was paid towards good-will and
therefore exempt from tax.
Dismissing the appeals by certificate the
Court,
HELD : 1. The word 'transfer' is
comprehensive and is regarded generally as comprehending within its scope
transfers both of the voluntary and involuntary kinds.
Without more, therefore there is no reason
for limiting the operations of the word 'transfer' to voluntary acts of
transfer so as to exclude compulsory acquisitions of property. [917 G-H]
2. (a) The word 'transfer cannot be construed
ajusdem generis with the words sale'.'exchange' or relinquishment'.
[918 A] (b) There is no room for the
application of ejusdem generis doctrine unless one finds a category and where
the words are clearly wide in their meaning, they ought not to be qualified on
the ground of their association with other words. [918 C-D] In the instant
case, in the absence of a distinct genus or category, no presumption can arise
that the word 'transfer' must be construed' in the sense of a voluntary act of
transfer since 'sale', exchange' or 'relinquishment' are in the normal
acceptation of those terms voluntary acts. The words (a) sale, (b) exchange,
(c) relinquishment and (d) transfer must accordingly be given their plain and
natural meaning and there is no justification for restricting the wide
comprehension of the last of the four words to voluntary transfers by the
application of the ejusdem generis rule. [918 E] 914 Provest, etc. of Glasgow
v. Glasgow Tramway Co., [1898] A.C.
631, 634 and N.A.L.G.O. v. Bolton Corpn.,
[1943] A.C. 166 quoted with approval.
(c)The proviso to S. 12B of the Income Tax
Act, 1922. as it stood prior to its amendment by the Finance Act (No. 3) 1956
shows that the word 'transfer' which occurred in sub- section (1) was intended
to include transfer of capital assets by reason of the compulsory acquisition
thereof under an law for the time being in force relating to the compulsory
acquisition of property for public purposes. The object of the proviso,
clearly, was to take away transfers by way of compulsory acquisition from the
scope of sub- section (1). It is impossible on any other hyprothesis to give
intelligible meaning to the exception carved out by the proviso. After the
amendment of S. 12B by the Act of 1956, the exception carved out by the proviso
in favour of 'transfer of capital assets by reason of the compulsory
acquisition thereof was deleted. The deletion of the particular clause of the
proviso contains an indelible reflection of the true legislative intent which
is, that the transfer of capital assets by reason of compulsory acquisition are
comprehended within the meaning of the word 'transfer'. If an existing title is
extinguished and a new one is created, there is within the, meaning of section
12B (1) of the Act of 1922, transfer of a capital asset. The fact that the
divestiture of title takes place under a law relating to compulsory acquisition
of property would make no difference to that position. The word 'transfer' which
occurs in section 12B (1) of the Income Tax Act, 1922, is an expression of wide
comprehension and includes within its sweep both voluntary and involuntary
transfers.[918 F, 919 B-H] Commissioner of Income Tax, Madhya Pradesh v.
Shriikrishan Chandmal and Anr., 47 I.T.R. 833, Wilfred Perera Ltd. v. Commissioner
of Income Tax, Madras, 53 I.T.R. 747, Commissioner of Income-Tax, Madras v.
United India Life Assurance Company Ltd., 62 I.T.R. 610 and Vadilal Soda Ice
Factory v. Commissioner of Income-tax, Gujarat II 80 I.T.R.
711 approved.
3.(a) The High Court has correctly negatived
the appellants' contention that goodwill should be valued separately and a part
of the compensation attributable to it should be deducted from the
compensation. [920 G] (b)Since the question as to whether a part of the
compensation is attributable to the goodwill of the appellant's business is a
mixed question of law and fact and since not only was the question not raised
by the appellant before the Income-tax Officer or the Appellate Assistant
Commissioner but, having raised it before the Tribunal, the appellant placed no
material before it on the basis of which good-will could be evaluated and a
part of the compensation properly apportioned to the goodwill of the business,
the appellant cannot be allowed to raise. the contention involved in two
questions raised before the High Court under S. 256(2) of the Income Tax Act,
1961. [921 D-E]
CIVIL APPELLATE JURISDICTION : Civil Appeals
Nos. 2160 and 2006 of 1972.
From the Judgment and Order dated 25th
August, 1971 and 19th November 1977 of the Calcutta High Court in Income Tax
Reference No. 106 of 1969 and 138/69.
Y.S. Desai, S. R. Agrawal, A. T. Patra and
Praveen Kumar for the Appellant in both the, appeals.
G.C. Mathur and Miss A. Subhashini for the
Respondent in both the appeals.
The Judgment of the Court was delivered by
CHANDRACHUD, C.J.-The appellant, the Mangalore Electric Sup- ply Company
Limited, was carrying on. the business of distribution of electricity in
Mangalore, South Kanara District, under a licence granted 915 by the Government
of Madras in favour of Messrs Octavious Steel & Company Limited. The
licensee had assigned its right to the appellant with the previous consent of
the State Government. Under section 4 of the Madras Electricity Supply
Undertakings (Acquisition) Act, 1954, the State Government had the power to
take over any electricity undertaking, declaring that it shall vest in the
Government on the date specified therein. In exercise-of that power, the Government
of Madras passed an order declaring that the appellant's undertaking would vest
in the Government on December 31, 1956, which date was later advanced to
October 15, 1956. The appellant's undertaking was accordingly acquired by the
Government and its properties were taken over on the date of vesting. Mangalore
was then a part of the State of Madras.
Section 5 of the.Acquisition Act, 1954,
provided for payment of compensation to a licensee whose undertaking was taken
over by the Government. Three modes of fixation of compensation were provided
for by that section, called Basis A, Basis B and Basis C. Section 6 gave to the
undertaking concerned the option to choose any one of these three modes.
According to Basis A, the licensee was
entitled by way of compensation to the payment of an amount equal to 20 times
the average net annual profits of the undertaking during the period of five
consecutive accounting years immediately preceding the date of vesting. The,
appellant opted for compensation on Basis A, one of the consequences of which,
'as provided by the, Act, was that the entire property belonging to the
undertaking, including the fixed assets, vested in the State Government under
section C. Applying Basis A, the appellant was paid compensation in the sum of
Rs. 18,42,312/-.
In the course of the appellant's assessment
for the assessment year 1957-58, corresponding to the accounting year
commencing on April 1, 1955 and ending on October 14,'1956, the Income-tax
Officer considered the question whether the compensation received by the
appellant for the acquisition of its undertaking was in the nature of a capital
gain within the, meaning of section 12B of the Indian Income-tax Act, 1922.
Deducting a sum of Rs. 6,46,710/-, representing the value of fixed assets, from
the compensation paid by the State Government to the appellant, the Income-tax
Officer treated the sum of Rs. 11,95,602/as capital gains which was liable to
be brought to tax. The appellant appealed to the Assistant Commissioner
contending that the compulsory acquisition of its undertaking was not a
'transfer' within the meaning of section 12B(1) and therefore it was not liable
to capital gains tax. That argument was rejected by the Assistant Commissioner
whose judgment was confirmed in a further appeal, by the Income- tax Appellate
Tribunal. On the application of the appellant, the Tribunal referred the
following question for the opinion of the High Court "Whether, on the
facts and in the circumstances of the case, the acquisition under the Madras
Electricity Supply Undertakings (Acquisition) Act, 1954 came within the scope
of section 12B of the Indian Income-tax Act, 1922 so as to render liable any
surplus arising from such acquisition to tax under section 12B of the
Act?" 916 By its judgment dated August 25, 1971, the High Court upheld the
view taken by the Tribunal but granted to the appellant a certificate of
fitness, to file an appeal to this Court.
That has given rise to Civil Appeal No. 2160
of 1972.
The appellant had asked the Tribunal to refer
for the opinion of the High Court four other questions. The Tribunal having
declined to do so, the appellant applied to the High Court under section 256
(2) of the Income-tax Act, 1961, requesting it to call for a reference from the
Tribunal. The High Court agreed and called for a reference on the four points,
the 3rd and 4th out of which were not pressed by the appellant when the
reference was heard by the High Court. Before the High Court the appellant
limited its argument to the following two questions (i) Whether on the facts
and in the circumstances of the case and on a proper interpretation of the
Madras Electricity Supply Undertakings (Acquisition) Act, 1954 the Tribunal was
justified in law in holding that no part of the compensation was attributable
to the goodwill of the company;
(ii)Whether the Tribunal was justified in law
in not determining the amount of compensation attributable to the goodwill and
in further not determining the Capital Gains, if any, arising out of such
acquisition", By its judgment dated November 19, 1971, the High Court
answered both the questions against the appellant but granted to it a
certificate of fitness to appeal to this Court, which has given rise to Civil
Appeal No. 2006 of 1972.
We will take up Civil Appeal No. 2160 of 1972
first for her consideration the involves for consideration the decision of the
question whether compulsory acquisition of property falls within the scope of
section 12B of the Indian Income- tax Act, 1922, so as to render any surplus
arising from such acquisition liable to tax under that section.
Capital gains were charged for the first time
by the Income- tax and Excess Profits Tax (Amendment) Act, 1947, which inserted
section 12B in the Indian Income-tax Act, 1922. It taxed capital gains arising
after March 31, 1946. The levy on capital gains was, however, abolished by the
Indian Finance Act, 1949, which confined the operation of section 12B to
capital gains arising before April 1, 1948. The levy of tax on capital gains
was revived by the Finance (.No. 3) Act, 1956, with effect from April 1, 1957,
which substituted the following section with which we are concerned. It read
thus :
"12B(1) The tax shall be payable by an
assessee 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 the income of the previous year in which the sale, exchange,
relinquishment or transfer took place :
917 Provided that any distribution of capital
assets on the total or partial partition of Hindu undivided family or under a
deed of gift, request or will shall not for the purposes of this section be
treated as a sale, exchange, relinquishment or transfer of the capital
assets........" Learned counsel appearing for the appellant contends that
if a subject is deprived of his property by the State in exercise of its power
of eminent domain, there is no 'transfer' of property within the meaning of
section 12B(1), the reason being that a transfer cannot be effected, according
to the ordinary connotation of that word, without the concurrence of the
transferor and the transferee. It is urged that a compulsory divestiture of
title against the volition of the owner cannot amount to transfer, howsoever
lawful the act may be as a statutory acquisition of property. The justification
for this submission is stated to be that the word 'transfer' occurs in the
collocation of three other words 'sale', 'exchange' and 'relinquishment' which
are essentially volitional or voluntary acts, leading to the conclusion that
the word 'transfer' must take its colour from the three other words in
association with which it is used. 'Transfer', therefore, according to the
learned counsel, means a voluntary transfer and cannot include the compulsory
acquisition of property.
We find it impossible to accept this
submission. In the first place if it was intended that voluntary transfers
alone should fall within the meaning of the section, it was unnecessary for the
legislature to use the expression 'transfer', an expression acknowledged in law
as having a vide connotation and amplitude. Earl Jowitt, in 'The Dictionary of
English Law' says "In the law of property, a transfer is where a right
passes from one person to another, either (1) by virtue of an act done by the
transferor with that intention, as in the case of a conveyance or assignment by
way of sale or gift, etc.; or (2) by operation of law, as in the case of forfeiture,
bankruptcy, descent, or intestacy".
Roland Burrows on Words and Phrases', volume
V, contains a statement under the caption 'Transfer on Sale' at page 331 that
even a transfer of land under compulsory powers is a transfer 'on sale'. It is
unnecessary for us to consider the question whether a compulsory acquisition of
property is a 'sale within the meaning of section 12B(1) and indeed, it is
needless for the present purpose to go that far. We are concerned with the
narrower question whether a compulsory acquisition of property can amount to a
'transfer' within the meaning of section 12B(1) and upon that question it is
important to bear in mind that the word transfer is comprehensive and is
regarded generally as comprehending within its scope transfers both of the
voluntary and involuntary kinds. Without more, therefore, there is no reason
for limiting the operation of the word 'transfer' to voluntary acts of transfer
so as to exclude compulsory acquisitions of property.
918 The argument that the word 'transfer'
must be construed ejusdem generis with the words sale, exchange or
relinquishment has to, be rejected because as stated in Craies on Statute Law
(7th edition, page 181);
"the ejusdem generis rule is one to be
applied with caution and not pushed too far, as in the case of many decisions,
which treat it as automatically applicable, and not as being, what it is, a
mere presumption, in the absence of other indications of the intention of the
legislature. The modern tendency. of the law, it was said, is 'to attenuate the
application of the rule of ejusdem generis'. To invoke the application of the
ejusdem generis rule there must be a distinct geneus or category.
The specific words must apply not to
different objects of a widely differing character but to something which can be
called a class or kind of objects. Where this is lacking, the rule cannot
apply".
Thus, unless you find a category there is no
room for the application of ejusdem generis doctrine and where the words are
clearly wide in, their meaning they ought not to be qualified on the ground of
their association with other words. (See Provost, etc. of Glasgow v. Glassgow
Tramway) Co.(1). In N.A.L.G.O. v. Bolton Corpn.(2), it was held that "the
ejusdem generis rule is often useful or convenient, but it is merely a rule of
construction, not a rule of law". In the instant case, in the absence of a
distinct genus or category, no presumption can arise that the word 'transfer'
must be construed in the sense of a voluntary act of transfer since 'sale',
'exchange' or 'relinquishment' are in the normal acceptation of those terms
voluntary acts. The words (a) sale, (b) exchange, (c) relinquishment and (d)
transfer must accordingly be given their plain and natural meaning and there is
no justification for restricting the vide comprehension of the last of the four
words to voluntary transfers by the application of the ejusdem generis rule.
The legislative history of section 126(1)
furnishes an important clue to the question raised by the appellant's counsel.
Prior to its amendment by the Finance (No. 3) Act, 1956, which came into force
on April 1, 1957, section 12B(1) of the Act of 1923 read thus :
"12B. Capital gains.-(1) The tax shall
be payable by an assessee under the head 'Capital gains' in respect of any
profits or gains arising from the sale, exchange or transfer of a capital asset
effected after the 31st day of March, 1946, and before the 1st day of April,
1948; and such profits and gains shall be deemed to be income of the previous
year in which the sale, exchange or transfer took place...
Provided further that any transfer of capital
assets by reason of the compulsory acquisition thereof- under any law for the
time being in force relating to the compulsory (1) [1898] A.C. 631, 634.
(2) [1943] A.C. 166.
919 acquisition of property for public
purposes of any distribution of capital assets on the total or partial
partition of a Hindu undivided family, or on the dissolution of a firm or other
association of persons, or on the liquidation of a company, or under a deal of
gift, bequest, will or transfer on irrevocable trust shall not, for the,
purposes of this section, be treated as sale, exchange or transfer of the
capital assets:............":
The proviso which we have extracted above
shows that the word 'transfer' which occurred in sub-section (1) was intended
to include transfer of capital assets by reason of the compulsory acquisition
thereof under any law for the time being in force relating to the compulsory
acquisition of property for public purposes. The object of the proviso,
clearly, was to take away transfers by way of compulsory acquisition from the
scope of sub-section (1). It is im- possible on any other hypothesis to give
intelligible meaning to the exception carved out by the proviso.
This is in so far as the legislative history
of section 12B prior to its amendment by Finance (No. 3) Act, 1956, is
concerned. After the amendment of section 12B by the Act of 1956, the exception
carved out by the proviso in favour of 'transfer of capital assets by reason of
the compulsory acquisition thereof was deleted. The rest of the proviso was
retained substantially with certain modifications and additions which are not
relevant for our purpose. The deletion of the particular clause of the proviso
contains an indelible reflection of the true legislative intent which is, that
the transfer of capital assets by reason of compulsory acquisition are
comprehended within the meaning of the word 'transfer'. We are, therefore,
clear that if an existing title is extinguished and a new one is created, there
is within the meaning of section 12B(1) of the Act of 1922, transfer of a
capital asset. The fact that the divestiture of title takes place under a law
relating to compulsory acquisition of property would make no difference to that
position.
The High Court of Madhya Pradesh in the
Commissioner of Income-tax, Madhya Pradesh v. Shrikrishan Chandmal and
another(1), the High Court of Madras in Wilfred Pereira Ltd.
v. Commissioner of Income-tax, Madras (2 )
and Commissioner of Income-tax, Madras v. United India Life Assurance Company
Ltd. (3) and the High Court of Gujarat in Vadilal Soda Ice Factory v.
Commissioner of Income-tax, Gujarat(4) have taken the same view, namely, that
the word 'transfer which occurs in section 12B(1) of the Income-tax Act, 1922
is an expression of wide comprehension and includes within its sweep both
voluntary and involuntary transfers.
(1) 47 ITR 833.
(2) 53 ITR 747.
(3) 62 ITR 610.
(4) 80 ITR 711.
920 The, judgment of the, High Court dated
August 25, 1971, leading to Civil Appeal No. 2160 of 1972 must therefore be
affirmed and the appeal dismissed.
In regard to Civil Appeal No. 2006 of 1972,
the case of the appellant before the Income-tax Officer was only this that the
compulsory acquisition of its undertaking did not amount to a 'transfer' within
the meaning of section 12B(1) of the Act of 1922. No case was made out that,
alternatively, goodwill is not a capital asset. The appellant did not contend
before the Appellate Assistant Commissioner also that goodwill is not a capital
asset and therefore at least to the extent to which compensation was
attributable to the goodwill, the Capital Gains tax was not attracted. The
appellant did contend before the Tribunal that apart from its tangible assets,
the State Government had taken over, the goodwill attaching to the business and
the appellant's right to the management of that business and the amount
referable to these items had to be deducted in computing the capital gains. The
Tribunal answered this contention by holding that- (a) goodwill as understood
in law had no real significance in the present case and could not have been
acquired by the Government;
(b) it was not one of the assets shown in the
balance-sheet;
(c) there was no proof to show that the
Government actually took over any goodwill;
(d) if the case of the appellant was that
even if it was not shown in the balance-sheet, payment therefore had to be
evaluated or apportioned, the appellant should have produced proof regarding
the evolution of the goodwill;
(e) the appellant had not placed any
materials before the Tribunal to show whether any interference was called for
in the matter of computation having regard to the value of goodwill as on
January 1, 1954; and (f) the right of management was not independent of the
business acquired and there. were no materials to show that this right could
have any value placed upon it in the fixation of compensation.
The High Court was, in our opinion right in
taking the view that in the light of these circumstances the appellant's
contention, that goodwill should be valued separately and a part of the
compensation attributable to it should be deducted from the compensation could
not be accepted. Even assuming for the purposes of argument that the two
relevant questions on which the, High Court called for a reference from the
Tribunal involved the consideration of any legal principle, the questions are
mixed questions of law and fact because, unless it is found that the goodwill,
in fact, had some value, it cannot be decided whether any part of the
compensation is attributable to the goodwill of the business.
921 Learned counsel for the appellant drew
our attention to the grievance made by the appellant in his application dated
February 8, 1972, for leave to appeal to this Court to the effect that the
Tribunal had expressed the view at the time of hearing of the appeal before it
that it would only decide the point whether a part of the compensation was
attributable to the goodwill of the business and that the question as regards
the value of the goodwill as of January 1, 1954,would be, left to the
Income-tax Officer for his determination. The grievance of the appellant is
that it was misled by the observations made by the Tribunal during the course
of the hearing of the appeal and that is why it did not produce any evidence
regarding the value of the goodwill. That there is no substance in this
contention is clear from the order of the Tribunal dated October 9, 1968, by
which it refused to refer for the opinion of High Court the question regarding
the evaluation of the goodwill.
The Tribunal observes in its order that
during the hearing of the appeal it had not expressed any view of the kind
attributed to it by the appellant and that no assurance was held forth to the
appellant that the question as regards goodwill would be left for determination
to the Income-tax Officer.
Since the question as to whether a part of
the compensation is attributable to the goodwill of the appellant's business is
a mixed question of law and fact and since not only was the question not raised
by the appellant before the Income-tax Officer or the Appellate Assistant
Commissioner but, having raised it before the Tribunal the appellant placed no
material before it on the basis of which goodwill could be evaluated and a part
of the compensation properly apportioned to the goodwill of the business, we
cannot allow the appellant to raise the contention involved in the two
questions. On those questions, therefore, the judgment of the High Court, for
the reasons mentioned by us, has to be affirmed. Civil Appeal No. 2006 of 1972
is also, therefore, dismissed.
In the ultimate result, both the appeals are
dismissed and the judgment of the High Court in both the cases is confirmed.
The appellant shall pay the Commissioner's costs in the appeals.
S.R. Appeals dismissed.
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