Capital gains on estate asset sales remain taxable where an administrator sells first and distributes cash later.

A proviso excluding distribution of capital assets under a will applied only to distribution in specie and not to a prior sale by an administrator followed by payment of the sale proceeds, so the realised gain remained taxable under section 12B(1) of the Income-tax Act, 1922. Section 24B did not exempt an administrator from liability for capital gains arising from the administration of the estate, because it only fastened representative liability for tax otherwise borne by the deceased. The challenge to the capital gains charge as ultra vires was rejected, and the gains were treated as assessable in the administrator's hands.

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Issues: (i) Whether the sale of shares and securities by an administrator of an estate, followed by distribution of the sale proceeds, fell within the proviso excluding a distribution of capital assets under a will from being treated as a sale, exchange or transfer under section 12B(1) of the Income-tax Act, 1922. (ii) Whether the administrator was exempt from capital gains tax under section 24B, and whether the charge of capital gains tax was ultra vires.

Issue (i): Whether the sale of shares and securities by an administrator of an estate, followed by distribution of the sale proceeds, fell within the proviso excluding a distribution of capital assets under a will from being treated as a sale, exchange or transfer under section 12B(1) of the Income-tax Act, 1922.

Analysis: The proviso was confined to a distribution of capital assets in specie under a will. Where the administrator first sold the assets and only thereafter distributed the realised cash, the capital asset had already been converted into money and the statutory protection did not apply. The legislative scheme taxed the profit at the stage of sale, and the proviso could not be extended to a sale preceding distribution merely because the sale was connected with administration of the estate.

Conclusion: The sale was not saved by the proviso and remained a taxable sale of capital assets.

Issue (ii): Whether the administrator was exempt from capital gains tax under section 24B, and whether the charge of capital gains tax was ultra vires.

Analysis: Section 24B fastened liability on the executor or administrator in a representative capacity for tax the deceased would have borne, but it did not exclude the administrator from liability for his own taxable receipts or gains arising in administration. An administrator who sells capital assets and realises capital gains is assessable under the Act like any other assessee. The challenge to the constitutional validity of the tax was also rejected in view of the earlier decision.

Conclusion: The administrator was liable to capital gains tax, and the constitutional challenge failed.

Final Conclusion: The reference was answered against the assessee on all substantial questions, affirming that the realised gains were taxable and that the administrator could not avoid liability by invoking the proviso or section 24B.

Ratio Decidendi: A proviso exempting distribution of capital assets under a will applies only to distribution in specie and does not extend to a prior sale followed by distribution of sale proceeds; an executor or administrator remains taxable on capital gains arising from such sale.

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