Nationalisation and asset vesting: no capital gains arose, but tax refund rights vested in the transferee Corporation.

Capital gains were not attracted on the nationalisation of the insurance business, the Court applying the earlier binding decision and accepting that no capital gains accrued to the assessee. By contrast, the right to refund of tax deducted at source on interest on securities belonging to the controlled business after the appointed day was treated as an asset appertaining to that business and, under section 7 of the Life Insurance Corporation Act, 1956, vested in the Corporation rather than in the assessee. The Court also rejected the contention that income-tax authorities could not incidentally determine entitlement to the refund.

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Issues: (i) Whether capital gains accrued to the assessee on nationalisation of its business under section 12B of the Indian Income-tax Act, 1922. (ii) Whether the assessee was entitled, in income-tax proceedings, to refund of tax deducted at source on interest on securities belonging to the controlled business after the appointed day under section 7 of the Life Insurance Corporation Act, 1956.

Issue (i): Whether capital gains accrued to the assessee on nationalisation of its business under section 12B of the Indian Income-tax Act, 1922.

Analysis: The questions on capital gains stood concluded by the earlier binding decision applied by the Court. On that basis, the Tribunal's view that no capital gains accrued on the nationalisation of the insurance business was accepted.

Conclusion: The issue was answered in the negative and in favour of the assessee.

Issue (ii): Whether the assessee was entitled, in income-tax proceedings, to refund of tax deducted at source on interest on securities belonging to the controlled business after the appointed day under section 7 of the Life Insurance Corporation Act, 1956.

Analysis: Section 7 of the Life Insurance Corporation Act, 1956 transferred to and vested in the Corporation all assets appertaining to the controlled business on the appointed day. The right to refund of tax deducted at source, being an asset arising from that business, vested in the Corporation and not in the assessee. The contention that the income-tax authorities could not incidentally examine who was entitled to the refund was rejected.

Conclusion: The issue was answered in the negative and against the assessee.

Final Conclusion: The references were disposed of by upholding the assessee's success on the capital gains issue and denying the claim to refund of tax deducted at source.

Ratio Decidendi: A right to refund arising from assets appertaining to controlled business is itself an asset of that business and vests in the transferee under section 7 of the Life Insurance Corporation Act, 1956; capital gains on nationalisation were not attracted on the facts governed by the earlier binding decision.

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