TMI Blog1960 (3) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... by S. K. DAS, J.--- This appeal by special leave is from the decision of the Bombay High Court dated August 25, 1954, in Income-tax Reference No. 1 of 1954. The only question which falls for decision in the appeal is the true scope and effect of the third proviso to old section 12B(1) of the Indian Income-tax Act, hereinafter referred to as the Act. The facts relevant to the appeal are these : one Henry Gannon was a resident of British India, who used to be assessed to income-tax under the income-tax law of this country. He left India in 1944 for the United Kingdom where he died on May 13, 1945. He left a will dated November 18, 1942, by which the National Bank of India Ltd. in London was appointed executor of his estate. On October 1, 1945, probate of the will was granted to the said bank by a court of competent jurisdiction in the United Kingdom. On October 25, 1945, a power of attorney was given by the bank to James Anderson, who is now the appellant before us. He made an application to the High Court of Bombay under section 241 of the Indian Succession Act and on that application obtained letters of administration with a copy of the will annexed. In the course of administ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2B(1) in view of the third proviso to section 12B(1) of the Indian Income-tax Act." At the instance of the assessee the other two questions which were decided against him were also referred to the High Court. The High Court of Bombay considered all the three questions in Income-tax Reference No. 1 of 1954 and by its decision appealed from answered all the three questions against the assessee. The appellant then moved this court for special leave which was granted on October 7, 1955. The question whether the levy of tax on capital gains under section 12B is ultra vires no longer survives by reason of the decision of this Court in Navinchandra Mafatlal v. Commissioner of Income-tax. This question was not therefore pressed before us. The question under section 24B was also not seriously pressed. The view of the Bombay High Court that section 24B does not limit the liability of the administrator or executor to the cases referred to under that section is correct ; because the appellant is as much an assessee under the Act as any other individual and if he makes capital gains, he is as much liable to pay tax as any other individual. This position has not been seriously contested be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ections 8, 9, 10 and 12.... (3) Where any capital asset became the property of the assessee by succession, inheritance or devolution or under any of the circumstances referred to in the third proviso to sub-section (1), its actual cost allowable to him for the purposes of this section shall be its actual cost to the previous owner thereof and the provisions of sub-section (2) shall apply accordingly ; and where the actual cost to the previous owner cannot be ascertained, the fair market value at the date on which the capital asset became the property of the previous owner shall be deemed to be the actual cost thereof." " Capital asset " is defined in section 2(4A) of the Act, and it was not disputed before us that the shares and securities which the appellant sold constituted capital asset within the meaning of that definition. We may shortly state here the scheme of sub-sections (1), (2) and (3) of section 12B of the Act. Sub-section (1) is the substantive provision which levies a tax in respect of profits or gains arising from the sale, exchange or transfer of a capital asset effected during a specified period. The admitted position in this case is that the appellant sold t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, (b) distribution of capital assets on the total or partial partition of a Hindu undivided family, (c) distribution of capital assets on the dissolution of a firm or other association of persons, or on the liquidation of a company, and (d) distribution of capital assets under a deed of gift, bequest, will or transfer on irrevocable trust. In the present case we are concerned with the question whether there has been a distribution of capital assets by the appellant under a will so as to bring him within the ambit of the third proviso. If the appellant comes within that ambit, then the sales which he made of the shares and securities will not be treated as transfer within the meaning of sub-section (1). The contention of the appellant is that there has been a distribution of capital assets by him under the will of Henry Gannon and therefore he comes under the protection of the third proviso. The High Court took the view that the expression " distribution of capital assets " in the third proviso can only mean such distribution in specie ; it cannot and does not mean distribution of the sale proceeds of the capital assets. The High Court, therefore, held that the appellant did not c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en its natural and plain meaning, viz., distribution in specie. The High Court expressed the view that by the proviso the Legislature might have intended to protect an assessee from a possible argument by the Revenue that when (to take an example appropriate to the case) an executor or administrator transferred the estate or part of the estate to the person entitled to it, there was a transfer within the meaning of sub-section (1) of section 12B. To us it seems that the purpose of the proviso is abundantly clear if the scheme of sub-sections (1), (2) and (3) is kept in mind. Assume that there is a distribution of capital assets in specie amongst the legatees, and one of the legatees sells the capital assets which he got in one of the ways mentioned in the third proviso ; he at once becomes liable to tax on the profits made on the sale. Sub-section (3) makes that position clear and if the proviso is read in the context of the substantive provisions of section 12B its purpose is quite clear. The purpose is this : as long as there is distribution of the capital assets in specie and no sale, there is no transfer for the purposes of the section ; but as soon as there is a sale of the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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