1996 (10) TMI 35 - HC - Income Tax

Agricultural Land, Capital Asset, Capital Gains, Representative Assessee, Transfer Of Property

Summary

Issues Involved:
1. Whether the official receiver is a representative assessee under section 160(1)(iii) of the Income-tax Act, 1961, in respect of capital gains derived from the sale of the insolvent's property.
2. Whether the sale of the insolvent's property by the official receiver results in capital gains assessable to tax.
3. Whether there is a cost in respect of the property sold by the official receiver.
4. Whether capital gains arising from the sale of agricultural lands falling within the definition of capital asset under section 2(14)(iii) are chargeable to income-tax under section 45 of the Income-tax Act, 1961.

Detailed Analysis:

Issue 1: Representative Assessee
The court examined whether the official receiver could be considered a representative assessee under section 160(1)(iii) of the Income-tax Act. The court referred to sections 27 and 28 of the Provincial Insolvency Act, 1920, which state that upon adjudication, the insolvent's property vests in the court or a receiver. The court concluded that the official receiver manages the property for the benefit of the creditors and not on behalf of the insolvent. Therefore, the official receiver cannot be treated as a representative assessee under section 160(1)(iii). The court reframed the first question to clarify this point and answered it in the affirmative, in favor of the assessee and against the Revenue.

Issue 2: Capital Gains Tax on Sale of Insolvent's Property
The court evaluated whether the sale of the insolvent's property by the official receiver results in capital gains assessable to tax. It was determined that while the capital gains arising from the sale are liable for tax, the person liable to tax is the official receiver and not the debtor. Consequently, the court answered this question in the negative, in favor of the Revenue and against the assessee.

Issue 3: Cost of Property Sold by Official Receiver
Given the court's answers to the first two questions, it did not find it necessary to express an opinion on whether there is a cost in respect of the property sold by the official receiver. Thus, no specific ruling was made on this issue.

Issue 4: Taxability of Capital Gains from Agricultural Lands
The court referred to its previous judgment in CIT v. Smt. Kaziamunnisa Begam [1995] 213 ITR 172, which held that capital gains arising from the sale of agricultural lands falling within the definition of capital asset under section 2(14)(iii) are chargeable to income-tax under section 45. Following this precedent, the court answered this question in the negative, in favor of the Revenue and against the assessee.

Conclusion:
The court concluded that the official receiver is not a representative assessee under section 160(1)(iii) of the Income-tax Act. While the official receiver is liable to pay capital gains tax on the sale of the insolvent's property, the insolvent is not. The court did not address the issue of the cost of the property sold by the official receiver and confirmed that capital gains from the sale of agricultural lands are taxable. The referred case was answered accordingly, with appreciation expressed for Mr. S. Ravi's assistance as amicus curiae.