Broad construction of taxing entry upheld capital gains tax as within legislative competence under the constitutional meaning of income.

The constitutional entry conferring taxing power had to be construed broadly according to its ordinary meaning, and the word "income" in entry 54 of List I was held wide enough to include capital gains. On that construction, the insertion of Section 12-B taxing capital gains fell within the Central Legislature's competence and was intra vires. The challenge to the validity of the amendment therefore failed, and assessment of capital gains under the provision was upheld.

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Issues: Whether the Central Legislature had competence under entry 54 of List I of the Seventh Schedule to the Government of India Act, 1935 to impose tax on capital gains by inserting Section 12-B in the Indian Income-tax Act, 1922.

Analysis: The question turned on the meaning of the word "income" in entry 54. The Court held that constitutional entries conferring legislative power must receive the widest possible construction consistent with their ordinary meaning. The expression "income" was not confined by any supposed legislative practice or by interpretations given to the word in particular income-tax cases. In its ordinary and natural sense, the word was wide enough to include capital gains, which are profits or gains actually received. On that construction, the amendment introducing capital gains as a taxable head was within the legislative field of the Central Legislature.

Conclusion: The challenge to the validity of Section 12-B failed, and the provision was held intra vires under entry 54.

Final Conclusion: The appeal failed on the sole substantive issue and the assessment of capital gains under the impugned amendment was upheld.

Ratio Decidendi: A constitutional entry conferring taxing power must be construed broadly according to its ordinary meaning, and the word "income" in entry 54 of List I includes capital gains.

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