Distribution of capital assets means distribution in specie, not sale proceeds, under section 12B of the Income-tax Act.

The third proviso to section 12B(1) of the Indian Income-tax Act was confined to distributions of capital assets in specie in the situations covered by sub-section (3). A sale of shares and securities followed by distribution of the proceeds was materially different from distribution of the assets themselves, and the expression "capital assets" could not be treated as equivalent to sale proceeds. Reading the proviso to cover sale proceeds would create an inconsistency in the statutory scheme. The proviso therefore did not protect the administrator's sale under the will, and "distribution of capital assets" meant distribution in specie, not distribution of sale proceeds.

---

---

Issues: Whether the third proviso to section 12B(1) of the Indian Income-tax Act protected the administrator's sale of shares and securities under a will, and whether the expression "distribution of capital assets" meant distribution in specie or distribution of sale proceeds.

Analysis: Section 12B taxed profits or gains arising from the sale, exchange or transfer of a capital asset, while sub-section (3) contemplated cases where capital assets became the assessee's property by succession, inheritance, devolution or under the circumstances mentioned in the third proviso. Read with that scheme, the proviso was meant to exclude from the section transfers by way of distribution of capital assets in specie in the specified situations. The expression "capital assets" could not be equated with their sale proceeds, and a sale followed by distribution of proceeds was materially different from a distribution of the assets themselves. Construing the proviso as including sale proceeds would create an anomaly and would not fit the structure of the section.

Conclusion: The third proviso did not cover the administrator's sale of the shares and securities, and "distribution of capital assets" meant distribution in specie and not distribution of sale proceeds.

---