1. In this reference made under section 256(1) of the Income-tax Act, 1961 (Central Act No. 43 of 1961), the Income-tax Appellate Tribunal, Bangalore Bench, Bangalore ('Tribunal'), at the instance of the assessee, has referred the following questions of law for the opinion of this court :
'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the short term capital gains of Rs. 10,675 was assessable on the sale of a part of the property
(2) Whether, the Tribunal was right in holding that section 51 of the Income-tax Act, 1961, is not applicable on the facts and in the circumstances of the case ?'
2. In order to appreciate the questions referred to us, it is necessary to notice the facts as found by the Tribunal which are not in dispute also.
3. On October 18, 1983, the assessee purchased immovable property bearing No. 8, Bore Bank Road, Benson Town, Bangalore City, measuring an extent of 43,700 sq.ft. in a court auction for a sum of Rs. 3,14,835. Some time thereafter, from out of the aforesaid property, the assessee sold an extent of 75' x 50' or 3,750 sq. ft. for a sum of Rs. 35,875.
4. For the assessment year 1974-75, the assessee filed its return before the Income-tax Officer (Assessment 9) Circle II, Bangalore, in which it did not include the capital gains accrued from the sale of the aforesaid property on the ground that 'the whole of the capital asset' had not been transferred or there was only a piecemeal transfer, which was not exigible to capital gains under the Act. But, the Income-tax Officer in his assessment order made on November 27, 1984 (Annexure A) rejected the said claim of the assessee, computed a sum of Rs. 10,675 as capital gains from short term capital asset and brought the said sum to tax under the Act. In the first and second appeals filed by the assessee under the Act, the Appellate Assistant Commissioner of Income-tax, Bangalore Range II, Bangalore, and the Tribunal have concurred with the said determination made by the Income-tax Officer. Hence, this, reference.
5. Sri K. R. Prasad, learned advocate, has appeared for the assessee. Sri G. Sarangan, learned senior standing counsel for the Income-tax Department assisted by Sri H. Raghavendra Rao, junior standing counsel, has appeared for the Revenue.
6. Sri Prasad has urged that unless the entire capital asset was transferred by the assessee, it was impossible to hold that there was capital gain from the transfer of a part of such asset and that on a true and proper construction of sections 45, 48 and 51 of the Act and other related provisions, the answer to question No. 1 should be in the negative and in favour of the assessee. In support of his contention, Sri Prasad has strongly relied on a Division Bench ruling of this court in CIT v. Smt. P. Mahalakshmi : 134ITR428(KAR) .
7. Sri Sarangan, has urged that the construction suggested by Sri Prasad that does violence to the provisions would result in evasion of taxes under the Act.
8. In computing the capital gains, the Income-tax Officer took the average cost of purchase of the property at Rs. 7.20 per sq.ft. and the sale price at Rs. 10.25 per sq.ft. and determined the capital gains thereon at Rs. 10,675 which was also contested before the Appellate Assistant Commissioner who on a detailed examination negatived that and other contentions. Before the Tribunal, the assessee did not take exception to the same and confined his challenge to the inclusion of capital gains as such on the very ground urged before the Appellate Assistant Commissioner and the Income-tax Officer.
9. On the rules of construction of statutes that are now well settled, we do not consider it necessary to notice all of them or extract the relevant passages from all of them. In C. Arunachalam v. CIT : 151ITR172(KAR) , a Full Bench of this court, reviewing all the earlier cases, has restated some of the principles that should guide us in interpreting the very Act. Bearing the well settled rules of construction of statutes, some of which have been reiterated in Arunachalam's case : 151ITR172(KAR) we proceed to ascertain the true scope and ambit of section 45 and other provisions of the Act.
10. Chapter IV-E of the Act deals with capital gains. Section 45 of the Act which is the charging section for capital gains that is material reads thus :
'Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 53, 54, 54B, 54D, 54E and 54F, be chargeable to income-tax under the head 'Capital gains', and shall be deemed to be the income of the previous year in which the transfer took place.'
11. This section provides that whenever there is a profit or gain arising from the transfer of a capital asset effected in the previous year, the same shall be chargeable to income-tax under the head 'Capital gains'. The words 'the transfer of a capital asset' occurring in section 45 of the Act cannot be interpreted as a transfer of the entire capital asset and not a part of the same. The words 'a capital asset' may mean the whole of that capital asset when so transferred or a part of that capital asset also. If the construction suggested for the assessee is accepted, then it is open to him to so arrange his affairs as to avoid capital gains for all time to come. On the rules of construction of statutes re-stated in Arunachalam's case : 151ITR172(KAR) we cannot countenance such a construction at all. No other provision in the Act helps the assessee to take a different view in the matter.
12. In Mahalakshmi's case : 134ITR428(KAR) on which reliance was placed for the assessee, the question that has arisen before us did not at all arise. Even otherwise, the ratio in that case does not really bear on the point.
13. On the foregoing discussion, it follows that our answer to question No. 1 has to be in the affirmative and against the assessee.
14. Sri Prasad in our opinion did not rightly contend that section 51 of the Act in any way helps the assessee to sustain its claim. Even otherwise, we do not find anything in section 51 of the Act to sustain the claim of the assessee on question No. 1 which is the real question of law that arises for determination. We have, therefore, no hesitation in holding that question No. 2 has to be answered in the affirmative and against the assessee.
15. In the light of our above discussion, we answer the questions referred to us in the affirmative, against the assessee and in favour of the Revenue. But, in the circumstances of the case, we direct the parties to bear their own costs.