Insolvency receiver and capital gains: vested property remains taxable, while agricultural land did not escape the capital gains charge.

An insolvency receiver administering vested property is not a representative assessee of the insolvent under section 160(1)(iii) because the receiver acts for creditors, not on behalf of the debtor. Capital gains arising from the receiver's sale of the insolvent's property remain taxable, with liability attaching to the person lawfully realising and administering the estate. The Court also held that agricultural land falling within the statutory capital-asset definition does not avoid the capital gains charge on the facts found, so the sale proceeds were chargeable to income-tax under section 45.

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Issues: (i) Whether the official receiver appointed in insolvency proceedings is a representative assessee of the insolvent under section 160(1)(iii) of the Income-tax Act, 1961 in respect of capital gains arising on sale of the insolvent's property; (ii) whether the capital gains arising from the sale of the insolvent's property are assessable to tax and whether the official receiver can be treated as liable for such tax; (iii) whether capital gains arising on the sale of agricultural land falling within section 2(14)(iii) are chargeable to income-tax under section 45 of the Income-tax Act, 1961.

Issue (i): Whether the official receiver appointed in insolvency proceedings is a representative assessee of the insolvent under section 160(1)(iii) of the Income-tax Act, 1961 in respect of capital gains arising on sale of the insolvent's property.

Analysis: On adjudication under the Provincial Insolvency Act, the insolvent's property vests in the receiver for administration of the estate and distribution among creditors. The receiver manages the property for the benefit of the creditors, while the insolvent is divested of right, title, and interest in the vested property until discharge. Section 160(1)(iii) applies where income is received or entitled to be received by a receiver on behalf of another; on that footing, the receiver in insolvency acts on behalf of the creditors and not on behalf of the insolvent.

Conclusion: The official receiver is not a representative assessee of the insolvent under section 160(1)(iii). The issue is answered in favour of the assessee and against the Revenue.

Issue (ii): Whether the capital gains arising from the sale of the insolvent's property are assessable to tax and whether the official receiver can be treated as liable for such tax.

Analysis: Although the insolvent is divested of ownership upon vesting, the property remains a taxable subject in the hands of the person who lawfully realises and administers it. The capital gain arises on the disposal of the property by the receiver in the course of administration of the insolvency estate, and the tax liability attaches to the receiver administering the estate rather than to the debtor.

Conclusion: The capital gains are assessable to tax, and the answer is against the assessee and in favour of the Revenue.

Issue (iii): Whether capital gains arising on the sale of agricultural land falling within section 2(14)(iii) are chargeable to income-tax under section 45 of the Income-tax Act, 1961.

Analysis: The Court followed its earlier view that agricultural land falling within the statutory definition of capital asset in the relevant urban context does not escape charge merely because it is agricultural in character. On the facts, the land sold was not exempt from the capital gains charge under section 45.

Conclusion: Capital gains arising on the sale of the land are chargeable to income-tax. The issue is decided in favour of the Revenue and against the assessee.

Final Conclusion: The reference was answered by holding that the official receiver is not the representative assessee of the insolvent, while the resulting capital gains remain taxable and the agricultural land claim does not defeat the charge to tax.

Ratio Decidendi: A receiver in insolvency is not a representative assessee of the insolvent under section 160(1)(iii) where the property vests in him for administration on behalf of creditors, but capital gains arising from the sale of such vested property are nonetheless taxable in the hands of the administering receiver; agricultural land is not exempt where the statutory capital-gains charge applies on the facts found.

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