HON’BLE SUPREME COURT · SOURCE-REVIEWED NOTE
Sevantilal Maneklal Sheth v. Commissioner of Income-tax (Central), Bombay
Civil Appeal No. 2454 of 1966
[1968] 2 SCR 360 ·
Indian Income-tax Act, 1922: sections 2(6C), 12B and 16(3)(a)(iii)
Sources & disclosures includedDownload original judgment / order
2-judge bench; unanimous judgment delivered by V. Ramaswami, J. · J. C. Shah, J. · V. Ramaswami, J.
Assessment years: 1957-58 (the only question pursued in the Supreme Court), 1958-59 and 1959-60 (interest-inclusion proceedings described as background, not decided by this appeal)
01 · Facts of the case
The body of the report says that in 1951 Maneklal Ujamshi gifted 1,184 ordinary and 155 preference shares in Changdeo Sugar Mills Ltd. to his wife, Bai Laxmibai. After conversion of the preference shares she held 2,424 ordinary shares and sold 2,400 on 1 August 1956 for Rs.1,54,800, producing a capital gain of Rs.70,860 under section 12B. The sale proceeds were deposited with a firm in which Maneklal and his son Sevantilal were partners and earned Rs.9,288 annual interest. The officer included the capital gain for assessment year 1957-58 and the interest for the next two years under section 16(3)(a)(iii). The High Court sustained the capital-gain inclusion but gave the assessee limited relief on some interest questions (SCR pp.361-363; PDF pp.2-4).
Source: Primary judgment: facts
02 · Discussion by the Hon’ble Court
The Supreme Court confined the appeal to whether the Rs.70,860 capital gain was income arising directly or indirectly from the assets transferred to the wife. It rejected a distinction between income yielded while the asset remained held and gain produced when the asset was sold: both sprang from the transferred asset, although the income-producing operation differed (SCR pp.364-365; PDF pp.5-6). Section 16(3)(a)(iii) had been enacted before capital gains were included in income, but the expression had to be read with the subsequently amended section 2(6C). Nothing in the context excluded capital gains, and the provision's anti-avoidance purpose opposed the proposed restriction (SCR p.365; PDF p.6).
Source: Primary judgment: discussion
03 · Judicial decision
The Court held that the High Court had rightly answered the first referred question against the assessee. Civil Appeal No.2454 of 1966 was dismissed with costs, preserving inclusion of the Rs.70,860 capital gain in assessment year 1957-58 (SCR p.365; PDF p.6).
Source: Primary judgment: decision
04 · Outcome / in whose favour
In favour of Revenue/the Commissioner. The wife's Rs.70,860 capital gain from sale of the gifted shares arose from the transferred assets and was includible in the assessee's income under historical section 16(3)(a)(iii) (SCR pp.364-365; PDF pp.5-6).
Source: Primary judgment: outcome
05 · AKHB REVIEW POINT
AKHB analysis: for a transferred-asset clubbing question, trace both identity and causal continuity—what property was transferred, what substituted or sale receipt followed, what income arose, and whether the governing clause reaches that income category under the applicable definition. Keep collateral interest on reinvested proceeds separate from the gain on sale of the transferred asset. The report's party and amount inconsistencies should remain visible in professional files rather than being normalized without another authoritative record (based on SCR pp.361-365; PDF pp.2-6).
Source: Primary judgment: reviewPoint
Source & verification
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Statutory scope
The judgment construes the spouse-transfer clubbing rule in section 16(3)(a)(iii), the capital-gains provision in section 12B and the then-amended definition of income in the repealed 1922 Act. It does not state the result under present section 64 or other provisions of the Income-tax Act, 1961. No current-law or later-treatment clearance was undertaken.
Later treatment
Source checked 2026-10-11. Later judicial treatment and current statutory applicability have not been comprehensively checked; no current-law or citator clearance is represented.
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