TMI Blog2011 (7) TMI 1260X X X X Extracts X X X X X X X X Extracts X X X X ..... hat assessee is an individual and had filed his return of income declaring salary income as well as income from other sources. During assessment proceedings, it was noticed that in the capital account accompanying the return a sum of ₹ 71,63,36,000/- was credited. This amount consisted of a sum of ₹ 44.5 crores on account of receipt by way of Government of India bonds and the balance sum of ₹ 27,13,36,000/- through bank transfer. On enquiry, assessee explained the circumstances under which the capital account came to be credited which are as under: 4. [1] One Mr. Edulji Framroze Dinshaw [for short EFD ] a resident of USA executed his will on 4-2-1970. This will was registered in the Court of County of New York United States of America. EFD expired on 14-3- 1970. Through this will all the movable properties situated anywhere and immovable properties situated in India were bequeathed to Mrs. Bachoobai Wornozow [for short BW ], who was a sister of the deceased. Mrs. BW was also appointed as executrix of the will and was also the beneficiary of the EFD s estates. The immovable properties situated in India were to be settled in the trust and the trustees were requ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her four companies which were fully controlled by him, entered into an agreement with Mrs. BW on 26-9-2001 [this agreement has been described as Indenture ]. Through this indenture, BW transferred and conveyed all her rights and interests over the sale proceeds of sale and/or disposal of the corpus to the assessee and four of his associate companies for a total consideration of ₹ 20 lakhs. Thus, assessee acquired 60% interest and the other four companies acquired 10% each interest in the rights of BW. It was also expressly provided in this indenture that the transfer of BW s rights were subject to out-come of the decision of the Hon'ble Bombay High Court in the suit filed by the Administrator challenging the will of EFD for bequeathing the properties in favour of two American Charities. It was also clearly provided that the transferee, i.e. the assessee and his four associate companies, would be entitled to receive proceeds only after the death of BW, which means that during her life time BW retained the right to receive the sale proceeds. 8. On 22-10-01 Hon'ble Bombay High Court pronounced its judgment in the suit filed by the Administrator challenging the bequea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pped into the shoes of BW. [iv] That what was transferred to the assessee was only distribution of the sale proceeds and the properties were never transferred to the assessee because estates of EFD had already entered into the development agreement with the builders and the properties were given for the development and the estate was entitled to only 12% of the sale receipts. [v] Even if it was assumed that BW had become absolute owner after the order of the Hon'ble Bombay High Court on 22-10-2001, as per the indenture dated 26-9-2001 the only benefit intended to be passed over to the assessee was only the distribution out of the sale proceeds. [v] In response to a further proposal that why the same should not be taxed under the head capital gains it was submitted that the assessee had not received the sale proceeds on transfer of any immovable property and the amounts were received by way of distribution from the estate of EFD out of the sale proceeds and advances received by the estates of EFD. Since the properties had been transferred by the estate, therefore, it was the estate of EFD which was liable to payment of capital gains tax. It was also contended that assessee had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FD that bequeathal of the properties to two American Charities were illegal and in order to take advantage entered into an adventure in the nature of trade by investing a small sum of ₹ 20 lakhs along with the other four companies knowing fully well that if bequeathal of properties to two American Charities was held to be invalid by the High Court then assessee had a chance of making a huge fortune. In the assessment order finally he has subjected the receipt of ₹ 71,63,36,000/- as business receipts. 15. Before the Ld. CIT(A) the submissions made before the AO were reiterated. It was further emphasized that BW did not have any children and the relationship she had with the assessee as Administrator of the estate since 1972 was that of a trust and she considered him as her own son as was stated in clause 16[e] of the petition dated 12-11-2003 filed before the Hon'ble High Court. Thus, she had a unique relationship with the assessee and, therefore, appeared to have identified him as a person fit to succeed her after her life time. It was further pointed out that BW was the sole executrix of the will left by EFD and was also residuary legatee by virtue of 5th clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions observed that the AO was not correct in holding that the appointment of Administrator and continuance of estate of EFD under the control and management of the Administrator was only a fa ade because the appointment of the Administrator was approved by the jurisdictional High Court. The original appointment was made because the first Administrator Mr. Jehangir Behram Dhubhash did not want to continue. Further, the appointment of the assessee as an Administrator even after the death of Mrs. BW in 2003 was approved by the Bombay High Court vide order dated 20-11-2003. Therefore, a further finding that assessee as an individual along with his four companies was absolute owner of the properties of the estates of EFD cannot be accepted as correct. Mr. Wadia was only an Administrator of estates despite the fact that he entered into an indenture dated 26-9-2001 and even thereafter. He referred to the decision of the Hon'ble Bombay High Court in the case of CIT vs. P. K. Thakore [136 ITR 464] and extracted the following observations from page 472: held --- ---- that the rights and liabilities under a contract between the appellant and a third party, as determined by a competent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egatee has no right in a property until the residuary is ascertained. Since the administration of the estate was not complete in the present case, therefore, despite the decision of the Bombay High Court vide order dated 22-10-2001 BW could not be considered to have become the legal owner of the immovable properties of the estate of EFD. Even after the said order, she could not have become absolute owner because the order of High Court could have been reversed by a larger Bench or by a higher forum. Even after withdrawal of an appeal by the two American Charities BW could not be considered to be the absolute owner of the immovable properties of her deceased brother EFD because as per sec.104 of Indian Succession Act, 1925, a legatee only has a vested interest in the property and the vesting is not full and absolute till the administrator gives his assent. It remains only as an inchoate right. He also quoted certain commentary. He observed that some of the confusion arose because assessee was acting in two capacities as Administrator as well as purchaser of certain rights. The situation would have been much simpler if the indenture dated 26-9-2001 was entered into by some outsider a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal legatee and, accordingly, exemption u/s.47[iii] was available to the assessee. 21. The Ld. CIT(A) dealt with detail the other observation of the AO for subjecting the receipts under the head capital gains . According to him, AO initially computed the capital gains on the basis of the value of the property at ₹ 1,11,33,393/- reflected in the balance-sheet of Administrator which was transferred by the assessee for a consideration of ₹ 71,63,36,000/-. The appellate authority observed that this conclusion was contrary to the conclusion reached earlier because AO in first place had already held that properties were never transferred by the Administrator/BW to the real estate developer and held that the said properties were capable of being transferred to the assessee by an indenture dated 26-9-2001. Therefore, it cannot be said that the properties have again been transferred because, AO had not indicated as to whom such properties were transferred and it appeared to the Ld. CIT(A) that AO had believed that the properties had already been transferred in Development Agreement of 1995. He also observed that part of the money received by the assessee consisted of advance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the estate was left with immovable properties. Under the terms of Indenture dated 26-9-2001 the immovable properties were not to be handed over to the parties to the Indenture and properties were to remain with the estate. Therefore, the assumption of AO regarding merger of role of an Administrator and individual for holding that receipts were earned from an adventure in the nature of trade, was not correct. He also observed that assessee is an industrialist who is on the board of several listed companies and had no indulged in any activity of investing in residuary estate or acquisition of interest in the will. This was a solitary transaction. At times, even a single isolated transaction may fall within the definition of business, but then such transaction must bear clear features of a trade. But since in this case there was only an investment and there was no sale, therefore, this will not fall under the definition of an adventure in the nature of trade. 24. While concluding, the Ld. CIT(A) observed that the AO had completely over-looked the provisions of sec.168 of the I.T.Act. Sec.168[2] clearly provides that assessment of an executor/administrator under this section shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 27. Ld. Sr. Standing Counsel while supporting the order of the AO further submitted that the indenture was signed within less than a month from the order of the High Court holding that the bequeathal to the two American Charities was void under the Indian Succession Act, 1925 and confirmed that BW was the sole residuary legatee entitled to receive the properties left behind by EFD in India. He argued in detail that the order of the High Court dated 22-10-01 became effective from March, 1970 making BW entitled to the properties right from 1970. When this issue was argued in detail by the Ld. Counsel of the assessee, the Ld. Sr. Standing Counsel admitted that no serious implications would be there as to whether the order became effective from 1970 or 2001. He submitted that amounts in question were received by the assessee because of the indenture dated 26-9-01. The indenture was executed for a consideration which resulted in assessee getting the right to receive the sale proceeds of properties belonging to the estate and on the basis of this indenture sale proceeds as well as some advances received by the estate were distributed which resulted in receipt of the impugned sum of ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances the assessee can be treated as a beneficiary, therefore, CIT(A) has arrived at a wrong conclusion by holding that assessee is entitled to the benefit of provisions of sec.47[iii]. He also made submissions that there is no force in the argument that Government of India bonds were never transferred to the assessee because such bonds were in the individual name of the assessee, therefore, it is clear that the intention was to give benefit to the assessee and that is why the bonds were purchased in the assessee s name and even accounting entries have been passed in the books of the assessee as well as the estate. 29. On the other hand Ld. Senior Advocate Shri S.E.Dastur who appeared on behalf of the assessee started his arguments by strongly supporting the order of the CIT(A) and pointed out that in the appellate order the issue has been discussed in detail at paras 36 to 83 and dealt with all the objections raised by the AO and reached a conclusion that the amounts received by the assessee were not liable to tax in his hands. 30. Shri Dastur then referred to ground No.1 raised by the Revenue and pointed out that the whole case has been based on a wrong footing by a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the rights in land to the developer was declared in the return of estate of EFD filed by the Administrator and such returns have been accepted by the department and in some years after scrutiny assessments orders u/s.143[3] have been passed [copies of the assessment orders were not filed in the paper book, therefore, ld. Sr. Advocate was directed to furnish the same and such assessment orders have been filed vide letter dated 16-6-2011 which are placed on record]. He pointed out that the fact that estate of EFD has filed separate returns was also taken specific note by the CIT(A) vide para 65 of the order. In this background, therefore, AO proceeded on the wrong footing that because of the indenture dated 26-9-01 assessee became the owner upon the death of BW and the properties fully vested in the assessee in his individual capacity. 31. Shri Dastur further argued that somewhere in 1995 Administrator had entered into a development agreement with some developers through which the developers were to develop the properties after removing encroachments and settling various legal disputes. These agreements were signed by BW also as confirming party. As per these agreements the es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it to the extent the same had already been taxed in the hands of the EFD s estate. The Ld. Sr. Advocate emphasized that the Administrator made the distribution of funds either out of tax paid income on sale proceeds of the properties or advances received from the purchasers, income from which could be assessed only when a conveyance deed was finally executed by the Administrator. Thus, payment from either of these sources could not be assessed as assessee s income again because the receipts did not bear the character of income and was not chargeable to tax accordingly. Shri Dastur further submitted that during BW s life she was entitled only to receive from the Administrator income derived from the estates of EFD i.e. immovable properties. However, the liability to pay the tax on income on disposal of such properties was that of Administrator and not of BW. In this regard, he referred to the provisions of sec.168 of the I.T.Act where it is clearly provided that liability to pay tax on income accruing to the estate was to be discharged only by the Administrator or the executor and not the legatee as the assessee continued to function as Administrator vide High Court s order dated 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmercial consideration and, therefore, the arrangement arrived at in the indenture dated 26-9-01 could not be viewed as an adventure in the nature of trade. He emphasized that in view of the fact that assessee s own sons were legatees of BW s will, there was no need for the assessee to embark upon any adventure in the nature of trade to realise gains from EFD properties. 33. The Ld. Sr. Counsel for the assessee further submitted that the assessee is an industrialist and is sitting in the Boards on various companies. The assessee has returned his income from mainly under the head salaries and is not doing any business activity. In any case, the assessee is not engaged in the business of making investments in residuary interest or acquisition of interest under the Wills. This was a solitary transaction indulged by the assessee. On a question from the Bench that whether a single transaction can never be construed as business in the nature of adventure in trade, he agreed that in some cases even a single transaction may constitute adventure in the nature of trade but in that case such transaction must have some elements or features of the business. In the present case, the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade for the purpose of section 28 of the Act. 34. Coming to the alternative finding and contentions of the revenue that the said receipt could be assessed as a short term capital gain, he submitted that this is totally misconceived because no transfer has taken place for attracting the provisions of section 45, there has to be an asset and the same must have been transferred only then the resultant gain or loss can be assessed as capital gains or capital loss. He admitted that the assessee along with four associate companies had purchased the rights to receive the sale proceeds on the disposal of the properties which belonged to the estate of EFD but such rights would vest in the transferees i.e. assessee and his four associate companies only after the death of BW. During the life time of BW, she could enjoy her life interest in the properties. He submitted that there was no intention to transfer the properties to the transferees in terms of the Indenture and in this regard specifically referred to clause 4(b) in the Indenture. Further BW herself was never the full owner of the EFD properties in India. Therefore, there was no question of transferees receiving full ownership of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he receipts of various amounts of sums by the assessee and his four associate companies from the Administrator basically amounted to distribution of sums on taking out or working out of rights . In this regard, he referred to the decision of the Hon'ble Gujarat High Court in the case of CIT vs. Mohanbhai Pamabhai [91 ITR 393]. In that case a question arose whether relinquishment of interest in a partnership amounts to transfer of capital assets, and the Hon'ble High Court after detailed discussion, held that such relinquishment would not amount to transfer but is basically working out of the rights. Following this analogy, according to Ld. Sr. Advocate, receipts of certain sums from the Administrator in realisation of pre existing rights did not amount to transfer of any capital asset for the reason that before the payment was actually realised each party s respective entitlement therein was the same. On receipts of payments from Administrator neither any new rights were acquired, nor existing rights of the parties were extinguished and, therefore, this would amount to working out of the rights. 36. The Ld. Sr. Advocate further argued that ownership of the properties of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration. In case of such transfer, such transferee by her right had the same right to demand performance of the right from the Administrator. Therefore, merely because assessee acquired the rights from BW under indenture dated 26-9-01, it would not mean that the payments made by the Administrator ceased to be payments under the will. He submitted that the provisions of sec.47[iii] needs to be examined from the point of view of a transferor i.e. Administrator of the estate in the case before us and since the Administrator was legally obliged and liable to make payments to BW under the will and failing her, the payments were to be made to the persons nominated or appointed by her. Thus, the nature and character of the payments in the hands of the payer continued to be the same, i.e., payments under the will. He further submitted that as these amounts were received by BW from the estate, naturally, same would have qualified for exemption u/s.47[iii] of the Act, then by equal force and on the same footing, same exemption should be available to the assessee in terms of the indenture. According to him, it was not necessary to prove that the amounts have been received only by a pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that there is no dispute in respect of the facts of the case which have been noted by us at the beginning of this order. The disputes are basically on account of inferences or interpretations to be made on those facts. The Revenue has challenged the impugned order by raising two grounds. The first ground reads as under: 1. The learned CIT(A) erred in treating the receipt of ₹ 71,63,36,000/- received on transfer of land as non taxable without appreciating the fact that the assessee is not the residuary legatee of Late Shri E.F.Dinshaw and the control, management and ownership of the properties consisting of the Estate of Shri E. F. Dinshaw vests totally with the assessee. Thus, in this background revenue has raised two disputes, [i] that the ld. CIT(A) erred in holding that receipt of ₹ 71.63 crores on transfer of land is not taxable and [ii] the assessee is not the residuary legatee of EFD, as control, management and ownership of the properties of EFD vested totally with the assessee. We are of the view that first part of the ground is totally misconceived because revenue is going on the assumption that assessee has transferred some land. The facts show othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his capacity as Administrator . The Administrator was required to pay income of the properties to BW but before doing that assessee under the law i.e. sec.168 of the I.T.Act was required to pay taxes on behalf of the estate. Even after the death of BW assessee made an application before the Hon'ble High Court for continuing as Administrator. A copy of the order of the High Court is available at pages 79 to 96 of the paper book. The reasons for continuance of Mr. Nusli N. Wadia as an Administrator have been given at para-16 of the petition which are as under: 16. The Petitioner submits that he, being appointed as Administrator of the deceased s estate in India by the aforesaid Order dated 21st December 1972, is entitled to continue with such administration. However, since the said Bachoobai was the sole Executrix of the deceased s Will dated 4th February 1970 of which Probate was granted to her under the Seal of the Surrogate s Court of the County of New York, New York, U.S.A. as aforesaid, the Petition has been advised to approach this Hon'ble Court by this Petition for orders authorizing and permitting him to continue with the administration of the deceased s estate i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding by and against the Petitioner in respect of the said - lands various Courts inMumb no less than half of them in this Hon ble Court. The Petitioner and under his guidance, the staff engaged by him deal with these legal proceedings. The Petitioner is a party to and s in the know of all these legal proceedings anal if the Petitioner is not allowed to continue with the administration without any delay, the interests of the deceased s estate and of the Petitioner himself and the remaining Transferees will be adversely affected. (c) With a view to maximize returns from the immoveable properties located in India and forming part of the deceased s estate, the Petitioner (with the concurrence of the said Bachoobai when she was alive)has entered into arrangements with developers of real esate to develop said lands on the basis that the said developers will, at their own costs, take all necessary steps for development (like laying out the said lands into plots constructing roads, drains, sewn, arranging power supply. providing infrastructure. getting approvals for construction work, etc.).carry out constriction work and sell premises in the development. In the course of such developm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceeds and the estate still continued because the Hon'ble High Court in its order dated 20-11- 2003 allowed the assessee to continue as Administrator. Thereafter, assessee kept on administering the estate and also filed income tax as well as wealth tax returns in the capacity of administrator. Copies of the income tax and wealth tax returns were not made part of the original paper book and on the direction of the Bench same have been filed vide letter dated 16-6-2011. A perusal of these documents clearly shows that the assessee in the capacity of Administrator has filed income tax and wealth tax returns on behalf of the estate of EFD for A.Yrs. 2004-05 to 2010-2011. For A.Yrs. 2005-06, 2006-07 and 2008- 09 the assessment orders have been passed u/s.143[3] in the name of the Administrator of the estate of late Mr. E. F. Dinshaw. This clearly shows that the existence of the estate of EFD was accepted even by the department. We further find that the Ld. CIT(A) has dealt with this aspect at paras 45 to 59 by referring to various provisions of Indian Succession Act, 1925 and various case laws as to how the estate was required to be administered and in whom such properties would ves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtain developers for development of the immovable properties. The developers were required to remove all encroachments as well as other legal impediments. BW who had life interest in the properties was confirming party to these agreements. In consideration, estate of EFD was to receive 12% of the sale proceeds received from the customers for the built up area and 88% of the sale proceeds were to go to the developers as their share. Consequent to these development agreements, the estate started receiving certain advances as well as sale consideration. Now before these amounts could be distributed the estate was required to file separate income tax returns in terms of sec.168 of the I.T.Act. From the copies of the returns made available before us, it becomes clear that estate of EFD had regularly filed income tax returns upto A.Y 2010-2011, some of which have been scrutinized and assessment orders have been passed u/s.143[3]. The returns have been filed in the name of the Administrator of estate of late EFD and assessment orders have also been made in that name. Initially the income received by the estate were assessed as business income in the hands of the estate, but the Ld. Sr. Ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . also similar issues raised in the Revenue s appeal also arise as raised in the case of the assessee. In case of this company the assessment was reopened on the basis that income has escaped assessment on account of the sum of ₹ 11,93,88,000/- which was credited to the capital reserve account, but not offered for taxation. As observed right at the beginning of this order that assessee had entered into the indenture dated 26-9-01 along with four associate companies and assessee along with these four companies had paid a consideration of ₹ 20 lakhs to BW for getting the right to receive the sale proceeds from the Administrator of the estate. 60% of the rights were to go to the assessee and 10% each of the rights were to go to each of these associate companies. Therefore, M/s Sevakunj Investments Co. Pvt. also became entitled to receive 10% of the sale proceeds by way of distribution. In the case of the assessee the argument that this income had suffered tax in the hands of the estate was rejected by the AO because details were not available. However, Ld. CIT(A) has accepted this position who after detailed discussion held that same item of income cannot be taxed twice. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cter of income, can also not be taxed, because, such advances would represent only liability as and when they would be converted into sale proceeds and taxes would be payable by the estate and, in fact, has already been offered for taxation in the hands of estate of EFD. Even if such advances have been distributed by the Administrator to the transferees which included the assessee also, would not change the basic character of the receipts. As pointed out earlier, the estate of EFD continued to be the owner of the properties in question at least for income tax purposes because as per sec.168 of the I.T.Act it is the Administrator who has to pay taxes on the income of such estate. 45. Section 168 reads as under: 168. (1) Subject as hereinafter provided, the income of the estate of a deceased person shall be chargeable to tax in the hands of the executor,- (a) if there is only one executor, then, as if the executor were an individual; or (b) if there are more executors than one, then, as if the executors were an association of persons; and for the purposes of this Act, the executor shall be deemed to be resident or non-resident according as the deceased person was a res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eased could be charged to tax only in the hands of his mother of the deceased. The assessee was not, therefore, liable to be taxed on the income from the undistributed personal estate of the deceased or the income from the undistributed share of the interest of the deceased in the HUF. Thus, it is clear from the above that whenever an estate is in existence, which in the case before us is definitely there, then taxes on the income of the estate are required to be paid only by the executor which would include administrator also and in the case before us the Administrator had already filed income tax returns which had been assessed also, which means, Revenue has accepted that income arising from the estate belonged to the estate. In these circumstances, advances received by the estate cannot be treated as income unless the same have been converted into the sale proceeds by execution of the conveyance deed. In fact, such advances have been treated as liabilities and whenever sales have been affected, they have been transferred to the sales account and offered for tax accordingly by the estate. Therefore, such advances if cannot be treated as income in the hands of the estate, then ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee was acting as the Administrator for almost 30 years and he knew that bequeathal of the properties to two American Charities may be held invalid in view of sec.118 of Indian Succession Act, 1925 therefore, by investing a small sum assessee could make a big fortune if ultimately the bequeathal to the two American Charities was held to be invalid. The Ld. Sr. Standing Counsel has also laid lot of stress on this fact and pointed out that assessee would not have received anything but for the indenture dated 26-9-2001 entered into by the assessee with BW. He had also laid emphasis on the fact that the indenture was subject to the order of the Bombay High Court wherein bequeathal of the properties to two American Charities was challenged and, therefore, this clearly shows that assessee had protected himself by making the indenture subject to the out come of the order of the High Court. Thus, by taking practically no risk assessee had invested the total sum of ₹ 20 lacs along with four associate companies and has obtained 60% rights for receiving the sale proceeds from the immovable properties for his personal consideration of ₹ 12 lacs. But after examining all the facts, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not aware of this fact because after all she was also the owner of the other half share of the properties which had been inherited by her as well as EFD from their late father. Moreover, the right to receive sale consideration was to commence as per the indenture dated 26-9-2001 only after the death of BW. These facts do not indicate any commercial relationship. 49. In any case, the issue also stands covered by the decision of the Hon'ble Madras High Court in the case of Mothay Ganga Raju vs. CIT [supra]. In that case assessee was a land owner and money lender and also had interest in certain cotton mills. The assessee purchased on 22- 3-1926 right, title and interest of one Shri Parthasarthy Appa Rao in the legacy left by one Shri Venkayamma through the court auction. The purchase price was ₹ 39,800/-. There was some protracted litigations between the date of purchase and the date of realisation of money along with the purchase cost the total expenditure came to ₹ 46625-15-0. The assessee ultimately realised a sum of ₹ 1,97,025/- from the reversions of the estate in question towards the amount due to him under the decree. Thus, assessee realised a surplus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the judgment of Lord Sands who says at p. 497 : The nature and quantity of the subject dealt with exclude the suggestion that it would have been disposed of otherwise than as a trade transaction. Neither the purchaser nor any purchaser from him was likely to require such a quantity for his private use. The view we take of the matter is that that case is certainly of no assistance to us, and that, with regard to this case, this was an isolated transaction in no way connected with any other trade or business activities of the assessee. That being so, we are unable to hold that it was an adventure in the nature of trade and, if that is so, then the sum in question was not clearly assessable to income-tax. In the case before us also assessee is an industrialist but his main source of income is only salary. He is not doing any business directly. In no other case he has entered into any other transaction of purchasing residuary legacy. Therefore, in view of the above decision, the transaction entered into by the assessee for purchasing the right to receive the sale proceeds cannot be construed as a transaction which can be called an adventure in the nature of trade. Here w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll call upon the Administrator to transfer to him, her them or it the immovable properties located in India and forming part of the deceased s estate in India. This clearly shows that estate of EFD continued to be the owner of the properties and that fact has been accepted by the Revenue by assessing the estate in the hands of the Administrator because income tax as well as wealth tax returns have been accepted by the revenue. In fact, assessee s right was restricted only for receiving of sale proceeds from the properties. Since assessee was not owner of the properties, there is no question of transferring any rights in such properties. Further, the administrator could not distribute the proceeds from sale of the properties unless the administration was complete i.e. expenses and taxes of the estate were paid. Then there was a further condition for payment of donation of ₹ 10 crores to a trust. After payment of such taxes etc., some sale proceeds and advances were distributed by the Administrator on which taxes were paid by the estate, therefore, there was no question of assessment of capital gains in the hands of the assessee as no capital asset was transferred. Even the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, stock-in-trade of a business carried on by him, such conversion or treatment ;] [or] [(iva) the maturity or redemption of a zero coupon bond; or] [(v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882) ; or (vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co-operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property. Explanation.-For the purposes of sub-clauses (v) and (vi), immovable property shall have the same meaning as in clause (d) of section 269UA;] From the above it is clear that one of the modes prescribed for disposal of an asset which can be covered by the definition of transfer is extinguishment. Now in the case before us, assessee obtained the right to receive sale proceeds along with four companies through indenture dated 26-9-01 which we have already observed wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of preference shares, the right of the assessee as a shareholder against the company as well as other shareholders was partly extinguished and, therefore, transfer took place within the meaning of sec.2[47] of the I.T.Act and assessee was liable to pay capital gains tax. The head note reads as under: Section 2[47] of the Income-tax Act, 1961, defines transfer in relation to a capital asset. It is an inclusive definition which, inter alia, provides that relinquishment of an asset or extinguishment of any right therein amounts to a transfer of a capital asset. It is not necessary for a capital gain to arise, that there must be a sale of capital asset. Sale is only one of the modes of transfer envisaged by s. 2(47) of the Act. Relinquishment of the asset or the extinguishment of any right in it, which may not amount to sale, can also be considered as a transfer and any profit or gain which arises from the transfer of a capital asset is liable to be taxed under s. 45. A company under s. 100(1)(c) of the Companies Act has a right to reduce the share capital and one of the modes, which can be adopted, is to reduce the face value of the preference shares. Section 87(2)(c) of the Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen it can be said that right of Mr. A is curtailed or partly extinguished to that extent. In these circumstances, we are of the view, that since there was no transfer of any capital asset during the previous year, therefore, no capital gain tax can be charged on the impugned sum. 52. Both the parties have also made submissions on the applicability of sec.47(iii) and according to the Ld. Sr. Standing Counsel these provisions could not apply in the assessee s case because assessee is not a beneficiary under the will. On the other hand, Ld. Sr. Advocate for the assessee had argued mainly that this provision can be applied in every case where an asset was transferred under a will whether distribution is made to a beneficiary or to any other person. However, after considering the submissions, we are of the view that relevant portion of sec.47[iii] reads as under: 47. Nothing contained in section 45 shall apply to the following transfers :- [i] . [ii] . (iii) any transfer of a capital asset under a gift or will or an irrevocable trust : [Provided that this clause shall not apply to transfer under a gift or an irrevocable trust of a capital asset being shares, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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