Relinquishment of managing agency rights was not a sale or transfer, so capital gains tax did not apply under strict construction.

Receipt from restructuring a managing agency arrangement was not taxable as capital gains because the transaction, on the agreed facts, amounted to relinquishment under a substituted arrangement rather than a sale or transfer of a capital asset. The original correspondence contemplated a transfer, but a later letter modified the arrangement so that the assessee would resign and give up the managing agency instead of assigning it. As taxing provisions must be strictly construed, section 12B could apply only if the receipt arose from a sale or transfer. It did not, so capital gains tax was not attracted.

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Issues: Whether the amount received on the restructuring of the managing agency arrangement was taxable as capital gains under section 12B of the Indian Income-tax Act on the footing that it arose from a sale or transfer of a capital asset.

Analysis: The original correspondence between the parties created only an agreement to sell shares and to have the managing agency transferred. Before any completed sale or transfer of the managing agency could occur, the arrangement was modified by a later letter under which the assessee was to resign and relinquish the managing agency instead of assigning it. On the agreed facts, the sum attributable to the managing agency represented consideration for relinquishment, not for a sale or transfer. In construing a taxing provision, liability can arise only if the transaction falls strictly within the statutory words.

Conclusion: The receipt did not arise from a sale or transfer of the managing agency and was not taxable as capital gains under section 12B.

Ratio Decidendi: Where the legal character of a transaction is one of relinquishment under a substituted arrangement rather than sale or transfer, section 12B does not apply because taxing provisions must be strictly construed.

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