Capital gains on insolvency sale fail where property vests in the Official Receiver and no cost of acquisition exists

Property vesting in an Official Receiver on insolvency was treated as a statutory vesting, leaving the insolvent with no subsisting rights in the asset. When the Receiver sold the property only as a custodian for administration and distribution among creditors, the capital gains machinery could not operate because no cost of acquisition could be attributed to the Receiver in his hands. The transfer-of-property vesting provisions and the representative-assessee provisions were held inapplicable on these facts, so capital gains tax was not leviable on the sale of the insolvent's property by the Official Receiver.

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Issues: Whether capital gains tax was leviable on the sale of the insolvent's property by the Official Receiver, having regard to the vesting of the property in the Official Receiver under insolvency law and the absence of any cost of acquisition in his hands.

Analysis: On adjudication of insolvency, the insolvent's property vested in the Official Receiver by operation of law and the insolvent ceased to have any rights, title or interest in it. The Official Receiver held the property only for administration and distribution among creditors and, when he sold the property, he did so in discharge of statutory duties rather than as an owner acquiring and transferring an asset at a cost. In such a situation, the computation machinery for capital gains could not be applied, because no cost of acquisition could be conceived in the hands of the Official Receiver. The provisions governing transfer of property on vesting and the representative-assessee provisions were held inapplicable on these facts.

Conclusion: Capital gains tax was not leviable in the hands of the Official Receiver on the sale of the insolvent's property, and the assessment to that extent was set aside in favour of the assessee.

Ratio Decidendi: Where property vests in an Official Receiver by operation of insolvency law and the Receiver sells it only as statutory custodian without any cost of acquisition in his hands, the capital gains charging and computation provisions do not apply.

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