AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
1960 (3) TMI 3
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...., 1945, a power of attorney was given by the bank to James Anderson, who is now the appellant before us. He made an application to the High Court of Bombay under section 241 of the Indian Succession Act and on that application obtained letters of administration with a copy of the will annexed. In the course of administration of the estate of Henry Gannon, the appellant sold certain shares and securities belonging to the deceased for the purpose of distributing the assets amongst the legatees. The sale of these shares and securities realised more than their cost price. The excess of the sale price over the cost price was treated by the Income-tax Officer as capital gain under section 12B of the Income-tax Act. For the assessment year 1947-48 the capital gain was computed by the Income-tax Officer at Rs. 20,13,738 and for the assessment year 1948-49 at Rs. 1,51,963. These amounts of capital gain were brought to tax for the assessment years 1947-48 and 1948-49 along with certain dividend and interest income which had accrued or had been received in the relevant years of account. Not satisfied with these assessments, the appellant preferred two appeals to the Appellate Tribunal, Bombay....
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....bility of the administrator or executor to the cases referred to under that section is correct ; because the appellant is as much an assessee under the Act as any other individual and if he makes capital gains, he is as much liable to pay tax as any other individual. This position has not been seriously contested before us. We are, therefore, left only with the question which turns on the true scope and effect of the third proviso to old section 12B(1) of the Act. Capital gains were charged for the first time by the Income-tax and Excess Profits Tax (Amendment) Act, 1947, which inserted section 12B in the Act. It taxed capital gains arising after March 31, 1946. The levy was virtually abolished by the Indian Finance Act, 1949, which confined the operation of the section to capital gains arising before April 1, 1948 ; but it was revived with effect from April 1, 1957, by the Finance (No. 3) Act, 1956, which substituted the present section. We are concerned in this appeal with the old section. That section, leaving out those parts which are not relevant for our purposes, ran as follows : " 12B. Capital gains.---(1) The tax shall be payable by an assessee under the head ' Capital ....
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....ections (1), (2) and (3) of section 12B of the Act. Sub-section (1) is the substantive provision which levies a tax in respect of profits or gains arising from the sale, exchange or transfer of a capital asset effected during a specified period. The admitted position in this case is that the appellant sold the shares and securities, which constituted capital asset, within that period and thus clearly came within sub-section (1) of section 12B. Sub-section (2) states how the amount of capital gain shall be computed, and it allows certain deductions from the full value of the consideration for which the sale, exchange or transfer of capital assets is made. As nothing turns upon the deductions allowed under sub-section (2), we need not refer to them. Sub-section (3) refers to a capital asset which became the property of the assessee by succession, inheritance or devolution or under any of the circumstances referred to in the third proviso to sub-section (1), and states what deductions the assessee is then entitled to. In one case, the assessee may be the administrator or executor who has himself sold the capital assets ; in another case the assessee may be the person who has got the c....
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....third proviso. The High Court took the view that the expression " distribution of capital assets " in the third proviso can only mean such distribution in specie ; it cannot and does not mean distribution of the sale proceeds of the capital assets. The High Court, therefore, held that the appellant did not come within the protection of the third proviso, as he did not distribute the capital assets in specie. On behalf of the appellant it has been contended before us that the High Court came to an erroneous conclusion with regard to the scope and effect of the third proviso. Mr. N. A. Palkhivala who has argued the case on behalf of the appellant has put his argument in the following way. He has submitted that normally the purpose of a proviso is to carve out an exception from the substantive provision. Sub-section (1) of section 12B, which is the substantive provision, imposes the liability to tax on an assessee in respect of profits or gains arising from the sale, exchange or transfer of a capital asset. Leaving out the case of compulsory acquisition of property for public purposes which may result in capital gains, Mr. Palkhivala has submitted that the other cases earlier enumer....
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.... if the proviso is read in the context of the substantive provisions of section 12B its purpose is quite clear. The purpose is this : as long as there is distribution of the capital assets in specie and no sale, there is no transfer for the purposes of the section ; but as soon as there is a sale of the capital assets and profits or gains arise therefrom, the liability to tax arises, whether the sale be by the administrator or the legatee. It is significant that the proviso uses the words " for the purposes of this section " and not merely sub-section (1). Indeed, Mr. Palkhivala was forced to concede that in view of the provisions of sub-section (3) of section 12B, the expression " distribution of capital assets " must also mean distribution in specie because under sub-section (3) it is the capital asset which becomes the property of the assessee under any of the circumstances mentioned in the third proviso. He then contended that the expression meant both distribution in specie and distribution of sale proceeds. We do not see why an unnatural or forced meaning should be given to the expression, when by giving the expression its plain and natural meaning the third proviso fits in w....