TMI Blog1954 (8) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be evaded by the executor selling the capital assets. 3. Palkhivala. It is only a sale, exchange or transfer that attracts the provision of Section 12B. Unless there is a transfer there is no liability to tax under Section 12B. Secondly, it is only the transferor who is liable to be taxed under Section 12B. It has been laid down by the Supreme Court that on inheritance there is no sale, exchange or transfer. In a case of succession the question of capital gains can never arise. The estate belonged to the deceased and the property, on succession, goes by way of gift. Hence there can be no capital gain by the deceased or his estate. In the case of distribution in specie the question of capital gain could never arise, and hence the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , C.J. 7. A very short question arises on this reference as to the proper interpretation of the third proviso to Section 12B(1) of the Indian Income Tax Act. The assessment years are 1947-48 and 1948-49, and the assessee is the administrator of the estate of one Henry Ganon. Henry Ganon died on May 13, 1945, having left a will dated November 18, 1942, and probate was issued of this will to the National Bank of India in England as the executors. The National Bank gave a power-of-attorney to the assessee and the assessee applied to the Court under Section 241 of the Indian Succession Act and obtained letters of administration with the will annexed. In the course of the administration of the estate the assessee sold shares and securities be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al assets...under...a will...shall not, for the purpose of this section, be treated as a sale, exchange or transfer of the capital assets. The contention of the assessee is that we have a case here where there is a distribution of capital assets under a will and therefore such a distribution cannot be treated as a sale, exchange or transfer of capital assets. 9. Now, in the first place, before we proceed to construe the third proviso, it is difficult to understand how this is a case of distribution of capital assets under a will. The capital assets dealt with by the testator by his will were the shares and admittedly there has been no distribution by the administrator of these capital assets. What the administrator has done is, he ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iso applies. In our opinion, it is clear that the third proviso only applies to a case where there is distribution of capital assets in specie. In our opinion, the construction suggested by Mr. Palkhivala is opposed to the plain natural meaning which we must put upon the third proviso. The suggested construction is both unnatural and strained and there is no reason whatever why that construction should be put upon the third proviso. The third proviso deals with a simple case where an administrator or an executor transfers capital assets belonging to the testator in specie to the persons entitled to those assets. The Legislature provides that in such a case there would not be any sale, exchange or transfer as contemplated by Section 12B(1), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceeds that the third proviso would have no application. In our opinion, the Legislature was not concerned with the voluntary or involuntary nature of the transaction. The sole concern of the Legislature was that if a capital asset was sold and a capital gain arose, such capital gain should be subjected to taxation. It was not the intention of the Legislature that in certain cases capital assets should escape taxation although they were sold and profit was made, and therefore the Legislature by enacting Section 12B(1) and also enacting Sub-section (3) provided for all cases of a capital asset left by a testator being sold and realised and profit being made. If the capital asset was sold before distribution, then clearly the tax would be attr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not so absurd or so impossible that the Legislature could not possibly have intended to counter it by enacting the third proviso. But really in this case we are not concerned to interpret the third proviso. What we are concerned with is to decide whether there is a sale of a capital asset which has resulted in a capital gain, and as we said before it is not disputed by Mr. Palkhivala that the administrator has sold capital assets in the nature of shares and securities and has realised capital gains. There is nothing in the third proviso which saves the sale from being subjected to tax. It is not a case of distribution ; distribution came subsequent to the sale ; and therefore whatever be the nature of the distribution contemplated by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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