1986 (7) TMI 3 - SC - Income Tax

Court Affirms Tax Act Applicability to Property Sale, Rejects Appeal Arguments

Jagdish Sugar Mills Limited Versus Commissioner of Income-Tax, Lucknow

The court dismissed the appeal, affirming the applicability of section 10(2)(vii) and section 12B of the Indian Income-tax Act, 1922, to the sale of the ... Winding up of company - attachment and auction - Whether the assessee is to be assessed on the balancing charge arising u/s 10(2)(vii) of the Indian Income-tax Act 1922 on account of the sale - whether assessee was not liable to capital gains - It cannot be said that there was no element of consent for the sale of the mill -sale of the mill attracted balancing charge under s. 10(2)(vii) Issues Involved:1. Applicability of section 10(2)(vii) of the Indian Income-tax Act, 1922.2. Applicability of section 12B of the Indian Income-tax Act, 1922, based on the timing of the sale.Detailed Analysis:Issue 1: Applicability of section 10(2)(vii) of the Indian Income-tax Act, 1922The primary contention was whether the provisions of section 10(2)(vii) of the Indian Income-tax Act, 1922, applied to the sale of the assessee's properties, which were auctioned to recover arrears of cane cess. The assessee argued that a compulsory sale for recovering arrears of land revenue does not constitute a 'sale' under section 10(2)(vii). They relied on precedents such as Calcutta Electric Supply Corporation Ltd. v. CIT and Indian Steel & Wire Products Ltd. v. State of Madras, which suggested that a 'sale' should involve mutual assent and be voluntary.However, the court held that the levy of cane cess was imposed under a statute for an activity voluntarily undertaken by the assessee. The statute provided for recovery as arrears of land revenue, including auction sales. Thus, the assessee, by engaging in the activity, implicitly consented to the statutory framework, including the possibility of an auction sale. Consequently, the court concluded that the auction sale fell within the scope of section 10(2)(vii) and rejected the assessee's contention.Issue 2: Applicability of section 12B of the Indian Income-tax Act, 1922, based on the timing of the saleThe second issue was whether the sale took place on November 10, 1955, when the auction was held, or on July 4, 1956, when the sale certificate was issued. Section 12B, which deals with capital gains tax, became effective from April 1, 1956. The assessee argued that the sale should be considered as having occurred on the auction date, thereby exempting it from capital gains tax.The court examined the relevant provisions of the U.P. Zamindari Abolition and Land Reforms Act and its Rules. It noted that the sale was only complete upon the issuance of the sale certificate, as per Rule 285M, which states that the certificate operates as a valid transfer of property. The court also dismissed the applicability of section 65 of the Code of Civil Procedure, 1908, which the assessee cited to argue that the property vests in the purchaser from the auction date. The court clarified that section 341 of the U.P. Zamindari Abolition and Land Reforms Act limits the application of the Code of Civil Procedure to ensure consistency with the Act, thereby excluding section 65.Thus, the court concluded that the sale took place on July 4, 1956, making section 12B applicable. The second contention of the assessee was also rejected.ConclusionThe appeal was dismissed with costs, affirming the applicability of section 10(2)(vii) and section 12B of the Indian Income-tax Act, 1922, to the sale of the assessee's properties. The court's judgment emphasized the statutory framework governing the sale and the timing of the sale certificate's issuance as the decisive factor for tax liability.