B. K. Mehta, J. - A short but interesting point as to what is the import of the first proviso to Section 114 (b)(ii) of the Income-tax Act, 1961 arises in these two references and as the questions referred to us are identical, we intend to dispose of both these references by this common judgment. A few facts may be noticed in order to appreciate the questions referred to us.
2. The original propositus was one Shri Mayabhai Premabhai who died leaving behind him two sons, Vimal and Sarabhai. Vimal had two sons. Arvind and Vinod, while Sarabhai had one on Dipak. A HUF consisting of all these persons was assessed as Mayabnhai Prembhai through Vimalbhai Mayabhai. This larger HUF had properties including certain immovable properties in Ahmedabad which were self occupied. Some of the properties were also let out. It is claimed that there was a partial partition between the two brothers involving the self occupied as well as the other properties. By a deed of partition of October 22, 1965, the partial partition as claimed was effected between the parties. In the accounting year relevant to the assessment year 1967-68 a property was sold by the aforesaid two brothers to the Life Insurance Corporation of India for a sum of Rs. 22,82,052/-. A question arose in the course of assessment of the two small HUFs of Vimalbhai Mayabhai and Sarabhai Mayabhai as to the liability of each of the respondent-assessees herein as to the capital gain tax on their respective shares of consideration namely Rs. 11,41,026/-. It is common ground that there was no taxable income of these two respondent-assessees except the capital gains which have accrued to them on account of sale of the property to the Life Insurance corporation of India. A contention was raised before the Income-tax Officer that since no amount of tax was payable by the respective assessee no capital gain tax could have been levied under sec. 114 of the Income-tax Act, 1961. This contention did not find favour with the Income-tax Officer and he held in each case that an amount of Rs. 6,97,074/-was the amount of capital gains liable to bear tax. Both the assessees being aggrieved by this order of the Income-Tax Officer carried the matter in appeal before the Appellate Assistant Commissioner. The same contention was urged in appeal that as the two smaller HUFs had no other income liable to tax, in respect of the income from capital gains under section 114 tax payable on capital gain would be nil since no average rate of tax on other income could be worked out. The Appellate Assistant Commissioner accepted his contention and allowed the appeals accordingly. There were other points in dispute in the appeals, with which we are not concerned in these references, The Income-tax Officer, therefore, carried the matter in appeals, to the Appellate Tribunal and as the Tribunal was of the opinion that since two interpretations were possible on the proviso to Section 114 (b) (ii) the Tribunal preferred that interpretation which was favourable to the assessee. The Tribunal confirmed the order of the Appellate Commissioner. The Additional Commissioner of Income-tax, therefore, sought reference and the following question has been referred to us in both these references :
'Whether the finding of the Tribunal that the proviso to Section 114 (b)(ii) of the I.T. Act, 1961, will not apply when there is no amount payable under Section 114(b) (ii) of the Act is erroreous in law ?'
2. We must answer these references in the affirmative for reasons which are obvious. Section 114 as stood at the relevant time read as under :
'114. Tax on capital gains in cases of assessees other than companies. Where the total income of an assessee, not being a company, includes any income chargeable under the head 'Capital gains', the tax payable by him on his total income shall be-
(a) the amount of income-tax payable on the total income as reduced by the amount of such inclusion and by the amount of compensation or other payment referred to in cl. (ii) of s. 28 and of the interest on National Savings Certificates (First issue), if any, had the total income so reduced been his total income; plus
(b) (1) the amount of income-tax calculated on the amount of the net capital gains relating to short-term capital assets, if any, included in the total income at the average rate of income-tax, which would have been applicable to the income if the amount of the net capital gains, if any relating to capital assets other than short-term capital assets and the amount of compensation or other payment and of the interest on National Saving Certificates (First Issue) aforesaid, if any, had not formed part of it; plus.
(ii) the amount of income-tax calculated on such part of the net capital gains, if any relating to capital assets other than short-term capital assets, as exceeds the sum of five thousand rupees-
(1) in the case of capital gains relating to buildings or lands, or any rights in buildings or lands, at three-fourths of the average rate of income-tax, and
(2) in any other base, at one-half of the average rate of income-tax, average rate of income-tax being computed for the purpose of this sub-clause in the same manner as for the purpose of sub-cl. (i) of this clause :
Provided that where the amount payable under sub-cl.(ii) of cl. (b) is less than the amount equal to fifteen per cent of the net capital gains in respect of which tax is payable under that sub-clause, then the amount payable thereunder shall be fifteen per cent of such net capital gains;
Provided further that where the total income does not exceed the sum of ten thousand rupees, the amount payable under the said sub-clause shall be nil;
(c) the tax on such compensation or other payment and on the interest on National Savings Certificates (First Issue) aforesaid, if any, computed in accordance with the provisions of cl. (ii) of sec. 112 and of cl. (b) of sec. 112-A, respectively.'
The scheme of Section 114 provides for computation of tax on capital gains in cases of assessees other that companies. The Scheme appears to be quite simple. First, the income-tax is to be computed on the income less capital gains. To this amount on income-tax is to be added the amount of income-tax and super-tax calculated on the amount of net capital gains relating to short-term capital assets at the average rate of income-tax, which would have been applicable to the total income, if the net capital gains relating to capital assets others than short-term capital assets and the amount of compensation or other payments referred to in Section 28(ii) had not formed part of the total income. To these is to be added the amount of income-tax calculated or such part of long term capital gains as may exceed sum of Rs. 5,000/- . The tax amount is to be calculated in case of capital gains relating to the buildings or lands or any rights in buildings or lands at three fourths of the average rate of income-tax. The average rate of Income-tax is to be computed for purposes of sub-clause (ii) in the same manner as computed for the purpose of sub-clause (i). After indicating the manner of computation of capital gains-tax, the legislature has provided minimum capital gains tax of 15% in the first proviso and further provided a complete exemption from the liability to pay tax on capital gains if the total income of the assessee concerned does not exceed Rs. 10,000/-.
3. The controversy in both these references turns on the interpretation of the first proviso to Section 114 (b) (ii). The contention of the assessee is that if there had been no taxable income besides the capital gains which have accrued in the relevant previous year, there would be no income-tax payable and, therefore, there was no question of application to the first proviso to sub-clause (ii). In the submission of the learned Advocate appearing on behalf of the assessees, the first proviso postulates that there should be some amount payable in order to attract the minimum liability of paying 15% by way of tax on capital gains. According to the learned Advocate of the assessees, the liability to pay minimum capital gains tax at the rate of 15% can be invoked only in those cases where the amount calculated under sub-clause (ii) of clause (b) of section 114 is less than the amount equal to 15% of the net capital gains. For working out that amount under sub-clause (ii) the basis is the average rate of income tax computed in the same manner as computed for purpose of sub-clause (i). In other words, the average rate of tax on the net taxable income is the basis for sub-clause (ii) of clause (b) of Section 114. If that average rate is zero or is nil, as is often called, there is no amount of income-tax payable on the long term capital gains under sub-clause (ii) of (b). If that is the position, the first proviso is not attracted because nothing is payable. We are afraid, we cannot agree with the interpretation which has been sought to be canvassed on behalf of the assessees, mainly for two reasons. In the first place, a plain reading of the first proviso does not warrant the interpretation which has been canvassed. First proviso, as has been said earlier in this judgment, provides for minimum liability of 15% of the tax on the net capital gains in respect of which tax is payable under sub-clause (ii). It is no doubt true that there was no other taxable income which could have provided an average rate of tax for purpose of working out capital gain tax under sub-clause (ii) of clause (b) of Section 114. But that would not be, in our opinion, sufficient to relax the rigour of first proviso entails a minimum liability of 15% on the capital gains earned by the assessees. In the second place, if the interpretation urged on behalf of the assessees is accepted, it would make the second proviso completely redundant.
4. The Scheme of this Section has come for consideration before a Division Bench of this Court consisting of Divan C.J. and myself in Commissioner of Income-tax, Ahmedabad vs. Hasanali Khanbhai and Sons, (1974 (1) Income-tax, Ahmedabad vs. Hasanali Khanbhai and Sons, (1974(1) Income-tax Journal, 528), where the Court was concerned with the question whether the Tribunal was right in holding that the respondent, which was a firm, was not liable to pay tax on capital gains made by it under section 114 of the Income-tax Act, 1961. The Division Bench considered the scheme of the capital gains under the 1961 Act and observed as under at page 532 :
Under the 1961 Act until the commencement of the assessment year 1964-65 i.e. till 31st March 1964, the position was practically the same as under the 1922 Act. Under the 1961 Act a distinction was drawn for the purpose of computing income-tax in respect of capital gains between short term capital gains and long term capital gains. Upto 1st April, 1964 so far as long term capital gains was concerned, no minimum was fixed for the purpose of computing the tax payable on that component of the total income of an assessee other than a company, which represented long term capital gains. However, with effect from 1st April, 1964 a proviso was added to section 114 and the proviso was in these terms -
'Provided that where the amount payable under sub-clause (ii) of clause (b) is less than the amount equal to fifteen per cent of the net capital gains in respect of which tax is payable under that sub-clause, then the amount payable thereunder shall be fifteen per cent of such net capital gains.'
The result was that in respect of every assessee, other than a company, under section 114, sub-section (2), clause (b) a liability arose to pay a minimum of 15 per cent of such long term capital gain as a tax on this component of the total income of the assessee.'
5. We, therefore, do not think that there is any other reasonable possible interpretation of the first proviso as has been urged on behalf of the assessees. If there is no alternative reasonable possible interpretation upon a provision of a taxing statute, it cannot be urged successfully that interpretation which is favourable to assessee should be preferred. We are, therefore, of the opinion that the Tribunal was not justified in preferring the interpretation which is favourable to the assessees since there was none, as in our view, for the two obvious reasons which we have stated above the so-called alternative interpretation is apparently impossible.
6. The result is that we answer the question referred to us in the affirmative and against the assessees and in favour of the Revenue. The respective assessees shall pay the costs in both these references to the Commissioner of Income-tax.