1. The assessee in this reference under Section 66(1) of the Indian Income-tax Act, 1922, was carrying on business as distributors of electricity in Mangalore, South Kanara District. The assessment year is 1957-58. The previous year is the year commencing from April 1, 1955, and ending on October 14, 1956.

2. The Mysore Government acting under Section 4(1) of the Madras Electricity Supply Undertakings (Acquisition) Act, 1954, took over all the properties of the assessee on October 14, 1956. The assessee did not carry on any business thereafter.

3. At the time the assessee was carrying on the business of distribution of electricity it was working under a licence which the Government of Madras had granted in favour of Messrs. Octavious Steel & Company Ltd., dated the 6th May, 1930, The licensee had the right to assign the licence subject to the previous consent of the Madras Government. The licence was assigned to the assessee.

4. Mangalore, prior to the reorganisation of States in November, 1956, was in the Madras State, The Madras Legislature passed the Madras Electricity Supply Undertakings (Acquisition) Act, 1954. Under the provisions of Section 4 of this Act the State Government had the power to take over, by order in writing, any electricity undertaking declaring that it shall vest in the Government on the date therein specified, such date being not earlier than four months from the date of the declaration. The Madras Government has also power to postpone the date of vesting except that the postponed date could not be later than one year from the date originally fixed.

5. In the instant case, the Government of Madras in the exercise of its power under Section 4 of the State Act, made an order that the assessee's undertaking should vest in the Government on the 31st December, 1956. By a subsequent order made on June 12, 1956, the State Government declared that the undertaking would vest not on the 31st December, 1956, but on the 15th October, 1956.

6. The undertaking, therefore, vested on October 15, 1956. The properties were taken over by the Government of Mysore which at that time was exercising jurisdiction over Mangalore.

7. Section 5 of the Madras Act provided for payment of compensation to a licensee whose undertaking was taken over. There were three modes for fixation of compensation, known as Basis A, Basis B and Basis C. Basis A provided for payment of an amount equal to twenty times the average net annual profits of the undertaking during a period of five consecutive accounting years immediately preceding the vesting date. Basis B provided for compensation at the aggregate value of the shares constituting the share capital of the undertaking. The value of the shares had to be reckoned in the manner provided in section 5(2). Basis C provided for compensation at the aggregate value of the amount of the assets of the company with an additional payment by way of solatium as provided in Section 5(3)(ix) of the Act.

8. The undertaking concerned was given the option by Section 6 to choose any one of the three modes of compensation. If the compensation were payable under Basis A or Basis B, then all the property belonging to the undertaking including fixed assets, etc., vested in the Government under Section 6 which provided also for exclusion of certain liabilities. If the compensation were payable on Basis C, then only those properties, rights, liabilities and obligations specified therein would vest in the Government.

9. In the present case, the assessee opted for compensation under Basis A, namely, twenty times the average net annual profits. The amount received as compensation by the assessee came to Rs. 18,42,312.

10. In the course of the assessment for the assessment year 1957-55, the Income-tax Officer went into the question of capital gains to be levied in respect of the said compensation under Section 12B of the Indian Income-tax Act, 1922, The Section as it then stood after amendment by the Finance (No. 3) Act, 1956, was as follows :

"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 :

Provided that any distribution of capital assets on the total or partial partition of a Hindu undivided family or under a deed of gift, bequest or will shall not for the purposes of this section be treated as a sale, exchange, relinquishment or transfer of the capital assets :

Provided further that the transfer of a capital asset by a company to a subsidiary company, the whole of the share capital of which is held by the parent company or by the nominees thereof, shall not be treated as a sale, exchange or transfer within the meaning of the Section where the subsidiary company is resident in the taxable territories and is registered under the Indian Companies Act, 1956, so however that for the purposes of Clause (vi) or Clause (vii) of Sub-section (2) of Section 10, the cost or the written down value, as the case may be, of the transferred capital asset shall be taken to be the same as it would have been if the parent company had continued to hold the capital asset for purposes of its business."

In the instant reference, the Income-tax Officer arrived at the capital gains as follows :

Compensation ...

Rs. 18,42,312 Less : Value of fixed assets ...

Rs. 6,46,710 Capital gains ...

Rs. 11,95,602 The assessee appealed to the Appellate Assistant Commissioner who held that the transactions fell within the scope of Section 12B, that a part of the compensation was to be attributed to the profit-making apparatus as such, that the actual cost of the assets minus depreciation allowed under the Income-tax Act would form the basis of computation of capital gains, that the market value of the assets for computing capital gains would be the written down value of the physical assets as on the 1st January, 1954, which were taken over by the Madras Government and that, computed on that basis, the capital gains as worked out by the Income-tax Officer were correct.

11. The matter then went to the Tribunal.

12. The material contentions before the Tribunal were that the transactions were not covered by the provisions of section 12b, because section 12b taxed only profits and gains arising out of sale, exchange, relinquishment or transfer and this was not a transaction of sale, exchange or relinquishment. It was also submitted that the income-tax authorities had proceeded on the view that this was a "transfer" but any "transfer" to come within Section 12B, will have to be a voluntary one. The assessee's counsel argued before the Tribunal that the word "transfer" took its colour from the words preceding it in Section 12B. And unless the transfer was a Voluntary one there was no liability under that section. The departmental representative submitted to the Tribunal that the word "transfer" covered even an involuntary transfer and not necessarily a voluntary one. The departmental representative stated further that, as there was a "transfer" in the present case, the said amount was liable to be taxed as capital gains.

13. The Tribunal has held that even acquisition by the operation of the provisions of the madras act came within the scope of the word "transfer" in Section 12B of the Indian Income-tax Act, 1922. The Tribunal has also passed a supplementary order on the quantum of the capital gains. But, in the instant reference, we are not concerned with that problem. The question referred to us in this reference is as follows :

"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 ?"

Learned counsel for the assessee has advanced before us more or less the same argument as was advanced before the Tribunal. Mr. Pal for the assessee contends that Section 12B imposed tax on capital gains in respect of any profits and gains arising from sale, exchange, relinquishment or transfer of a capital asset effected after 31st March, 1956. The word "transfer" in the Section, says Mr. Pal, is, no doubt, of wide import. It means all types of transfer--voluntary and involuntary. But, in the instant case, the word "transfer" is preceded by three other words of considerable significance, namely, "sale", "exchange" and "relinquishment".

14. Learned counsel contends that the word "sale" postulates a voluntary transfer. A compulsory transfer is not a sale within the meaning of the Act. Similarly, "exchange" is an example of a voluntary act and "relinquishment" is also an instance of voluntarily giving up any right or claim. Learned counsel invited us to compare the word "relinquish" with the word "extinguish" and said that the latter was of wider import than the former. What is relinquished is extinguished. But what is extinguished is not necessarily relinquished. Learned counsel submits that it is well known that if general words in a statute are preceded by specific words which connote a species or several species the intention of the legislature is that the doctrine of ejusdem generis would apply to the general words. According to counsel for the assessee the intention of the legislature in the present case is also manifested in the two provisos to sub-section (1) of section 12b. The first proviso excludes capital gains from taxation which may arise : (a) on a total or partial partition of a Hindu undivided family, (b) under a deed of gift, and (c) in the case of a bequest or will. The distribution of capital asset under a deed of gift is an instance of voluntary transfer. Similarly, distribution by bequest or will is also an instance of voluntary transfer. The same principle of voluntary transfer may apply to distribution on partition of a Hindu undivided family in some cases. Learned counsel points out that the second proviso to Sub-section (1) excludes transfer of capital asset by a company to its own subsidiary which is clearly an instance of voluntary transfer. The reason is that when a company transfers its capital assets to a 100% subsidiary it is virtually transferring these assets to itself and as such there is no intention to make capital gains. Moreover, the legislature makes it clear that the assets so transferred shall be taken to be the same as it would have been if the parent-company had continued to hold the asset for the purposes of its business. The provisos, therefore, argues counsel for the assessee, testify that the legislature intended that, unless a transfer was a voluntary transfer, capital gains could not be attracted.

15. Reliance was placed on the judgment of this court in Calcutta Electric Supply Corporation Ltd. v. Commissioner of Income-tax, [1951] 19 I.T.R. 406 (Cal.). Here, it was held that the ordinary meaning of the word "sale" was a transaction entered into voluntarily between two persons known as the buyer and the seller by which the buyer acquired properties of the seller for an agreed consideration known as a price. There is no dispute as to this proposition at all.

16. Counsel for the assessee also wanted us to look at the definition of sale in Section 54 of the Transfer of Property Act and said that the essential elements of a sale consist of ; (1) parties, (2) subject-matter, (3) transfer or conveyance, and (4) price for consideration. In other words, transfer by operation of law is not a sale within the meaning of the Transfer of Property Act.

17. Learned counsel has also placed before us various decisions which have discussed the doctrine of ejusdem generis. These decisions are Queen v. Justices for the West Riding, [1900] 1 Q.B. 291, Attorney-General v. Brown, [1920] 1 K.B. 773, Russell (Inspector of Taxes) v. Scott, [1948] A.C. 422 (H.L.) and Goli Eswariah v. Commissioner of Gift-tax, . These cases have explained what the doctrine is. These principles are well established and it is unnecessary to reiterate them here.

18. Mr. Pal for the assessee has also advanced an alternative argument. He says, if the word "transfer" is not construed to mean only a voluntary transfer, then it should be read in conjunction with the preceding words, namely, "sale", "exchange" and "relinquishment", and each of these preceding words refers to a bilateral transaction. In every case of "sale" there must be at least two parties. Similarly, in every case of "exchange" or "relinquishment" there must be at least two parties.

19. We are unable to accept either the main argument or the alternative argument of counsel for the assessee in this reference. In our view Section 12B(1) refers to four different types of transactions, namely, (1) "sale", (2) "exchange", (3) "relinquishment" and (4) "transfer". This view was also expressed in the case of Commissioner of Income-tax v. Chunilal Probhudas & Company, P. B. Mukharji J., as his Lordship then was, observes: "But the question then finally boils down to this whether goodwill is a 'capital asset' within the meaning of Section 12B of the Income-tax Act, 1922, read with Section 2(4A) of the Act. In order to be taxable capital gain within the meaning of Section 12B of the Income-tax Act, there has to be four primary tests, namely, (1) profit or gain, (2) capital asset, (3) arising out of, and (4) sale, exchange and relinquishment or transfer".

Again, at page 581, his Lordship has stated :

"In the view that we are taking it will no longer be necessary to discuss the characteristics of the four different types of transactions, namely, (1) sale, (2) exchange, (3) relinquishment, and (4) transfer, in Section 12B of the Income-tax Act."

The position, therefore, seems to be that, in construing Section 12B, the words, (a) sale, (b) exchange, (c) relinquishment or (d) transfer, have to be given their plain, ordinary or natural meanings.

20. We may usefully refer to the decision of the Bombay High Court in Provident Investment Co. Ltd. v. Commissioner of Income-tax, [1953] 24 I.T.R. 33, 39 (Bom.). At page 39, it is observed:

"In construing Section 12B we must not give to the expression 'sale or transfer' its technical meaning, nor must we attribute to 'sale or transfer' as used by the legislature in Section 12B a transaction clothed with all its legal formalities. But even giving to the expression its plain ordinary meaning, we must have before us a transaction, the real nature of which is that it is a transaction of sale or transfer, and looking to the correspondence in which the transaction is embodied we must be in a position to say that the transaction between the assessee-company and the Dalmia Co. was a transaction of sale or transfer."

The Supreme Court has approved of this decision in Commissioner of Income-tax v. Provident Investment Co. Ltd., [1957] 32 I.T.R. 190; [1957] S.C.R. 1141(S.C.). At page 195, their Lordships of the Supreme Court have observed :

"... in construing fiscal statutes and in determining the liability of a subject to tax, one must have regard to the strict letter of the law and the true legal position arising out of the transaction in question."

Their Lordships have referred to the Supreme Court's previous decision in A. V. Fernandez v. State of Kerala, [1957] 8 S.T.C. 561, 570: [1957] S.C.R. 837 (S.C.) where the following observations were made:

"If the revenue satisfies the court that the case falls strictly within the provisions of the law, the subject can be taxed. If, on the other hand, the case is not covered within the four corners of the provisions of the taxing statute, no tax can be imposed by inference or by analogy or by trying to probe into the intentions of the legislature and by considering what was the substance of the matter. We must of necessity, therefore, have regard to the actual provisions of the Act and the rules made thereunder before we can come to the conclusion that the appellant was liable to assessment as contended by the sales tax authorities."

We should also point out that in James Anderson v. Commissioner of Income-tax, the Supreme Court, at page 131, has stated:

"... the question whether the sale was voluntary or involuntary is not germane to the scheme of Section 12B."

From what we have stated above, it is manifest that, the word "transfer" in Section 12B is independent of the words "sale", "exchange" or "relinquishment" which precede it. This word has to be given its plain and natural meaning and compulsory acquisition comes within the scope of this word.

21. Our view, therefore, is that, "transfer" in Section 12B means transfer not only by act of parties but also by operation of law. The same view has been taken by other High Courts as well. The decisions are: Gowri Tile Works v. Commissioner of Income-tax, [1957] 31 I.T.R. 250 (Mad.), Commissioner of Income-tax v. Shri-krishan Chandmal, [1963] 47 I.T.R. 833 (M.P.), Wilfred Pereira Ltd. v. Commissioner of Income-tax, [1964] 53 I.T.R. 747 (Mad.), Commissioner of Income-tax v. United India Life Assurance Co. Ltd., [1966] 62 I.T.R. 610 (Mad.) and Vadilal Soda Ice Factory v. Commissioner of Income-tax,

22. It is interesting to note that the conclusions we have reached are supported by the provisions of section 12b(1), as they stood before the amendment of 1956. One of the provisos to Section 12B(1), before the amendment, was as follows :

"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 acquisition of property for public purposes or 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 deed 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."

This shows that before 1956 the legislature knew that compulsory acquisition was out of the purview of transfer. The legislature wanted to give relief in cases of compulsory acquisitions and had taken them out of the application of Section 12B(1) by the above proviso. We are not interested in proceedings in Parliament with reference to any statute. But counsel for the department in the course of his argument drew our attention to the budget speech of the Finance Minister and the statement of objects and reasons for, inter alia; the deletion of "compulsory acquisition" from the above proviso and we find that the Government's intention was clearly to make capital gains leviable in cases of compulsory acquisitions as well.

23. It is also interesting that in the 1961 Act much simpler provisions have been introduced in Section 45. Section 45 says:

"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 and 54b 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."

In Section 2(47) "transfer" in relation to capital asset has been defined. It includes the sale, exchange or relinquishment of the asset or the extinguishment of any rights therein or the compulsory acquisition thereof under any law.

24. The legislature, it appears, has tried to be much more explicit in the new Act than it was after the amendment in 1956 of the old Act.

25. We are, therefore, clearly of opinion that the doctrine of ejusdem generis does not apply to the word "transfer" in Section 1213(1) of the Indian Income-tax Act, 1922.

26. And since "transfer" is independent of any other word in Section 12B(1) preceding it and is of the widest import, we cannot accept the alternative argument of Mr. Pal that "transfer" in Section 12B(1) involves a bilateral transaction.

27. Our answer to the question in this reference is in the affirmative and in favour of the department. The assessee will pay the costs of the reference.

A.N. Sen, J.

28. I agree.