1956 (9) TMI 69 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the modification of the assessment of capital gains by the Appellate Assistant Commissioner.
2. Exemption of capital gains under the third proviso to section 12B(1).
3. Applicability of section 12B(1) to a sale executed by a court-appointed commissioner.
4. Computation of capital gains considering the depreciation allowed under section 10(2)(vii).

Analysis:

1. Validity of the Modification of the Assessment of Capital Gains:

The first issue was whether the modification of the assessment of capital gains from Rs. 61,140 to Rs. 81,863 by the Appellate Assistant Commissioner was valid. The court noted that the Appellate Assistant Commissioner merely performed a re-adjustment and hence, there could be no objection to his order on the ground of lack of jurisdiction. Consequently, the first question was answered in the affirmative and against the assessee.

2. Exemption of Capital Gains under the Third Proviso to Section 12B(1):

The second issue involved whether the capital gains of Rs. 81,863 were exempt under the third proviso to section 12B(1). The court referenced previous decisions, including Sri Kannan Rice Mills Ltd. v. Commissioner of Income-tax, Madras, which established that the third proviso applied only to cases of distribution of capital assets in specie and not to the distribution of sale proceeds. Since the sale in question did not meet this criterion, the court concluded that the sale was not exempt under the third proviso to section 12B(1). Therefore, the second question was answered in the negative and against the assessee.

3. Applicability of Section 12B(1) to a Sale Executed by a Court-Appointed Commissioner:

The third issue was whether the sale executed by a court-appointed commissioner fell within the scope of section 12B(1). The court rejected the assessee's contention that the sale was not consensual and thus not applicable under section 12B(1). It was held that a sale by a court-appointed commissioner is legally equivalent to a sale by the parties themselves. Furthermore, section 12B(1) includes not only sales but also transfers of capital assets, and thus, the transaction was subject to section 12B(1).

4. Computation of Capital Gains Considering the Depreciation Allowed Under Section 10(2)(vii):

The fourth issue concerned the computation of capital gains, specifically whether the sum of Rs. 20,723 (depreciation allowed) should be included in the capital gains calculation. The court examined the second proviso to section 12B(2), which states that the actual cost to the assessee should be its written down value, adjusted as per section 10(2)(vii). The court concluded that the adjustment referred to in the proviso must be an actual adjustment made in an assessment under section 10, not a theoretical one. Since no such adjustment had been made in the assessee's case, the court held that the entire sum of Rs. 81,863 was subject to capital gains tax. Therefore, the second question was answered in the affirmative and against the assessee.

Conclusion:

The court upheld the modification of the assessment and ruled that the capital gains were not exempt under the third proviso to section 12B(1). It also confirmed that the sale by the court-appointed commissioner fell within the scope of section 12B(1) and that the entire sum of Rs. 81,863 was liable to capital gains tax, rejecting the assessee's arguments regarding the depreciation adjustment. The reference was answered accordingly, with costs awarded to the Department.