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TMI Blog1996 (10) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... pellate Tribunal is justified in holding that there is no cost in respect of property sold by the official receiver ? 4. Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that capital gains arising on the sale of agricultural lands falling within the definition of capital asset under section 2(14)(iii) are not chargeable to income-tax under section 45 of the Income-tax Act, 1961 ? The respondent, Sri J. Narayana Murthy (hereinafter referred to as the assessee ), was adjudged as an insolvent in I.P. No. 2 of 1974 by the order of the subordinate judge at Vijayawada dated November 30, 1974. Consequently, all the properties owned by the insolvent, including an extent of ac. O-94 cents situate in Gummadala village, Krishna district, vested in the official receiver, Krishna District, at Machilipatnam. While administering the properties of the assessee, the official receiver sold the said extent of land for a sum of ₹ 3,50,000 and executed sale deeds on December 16, 1980. On the ground that the assessee had acquired that land for a sum of ₹ 25,000 on December 10, 1962, and thus capital gains accrued to him, not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent, the capital gains are deemed to have accrued to him. On that premise, he contends that the official receiver has rightly been assessed in his representative capacity under section 160(1)(iii) of the Act. Mr. Ashok developed his argument stating that the position of the official receiver was that of a general power of attorney and thus he was acting for and on behalf of the insolvent. He seeks to draw support from the provisions of sections 66 and 67 of the Provincial Insolvency Act, 1920, which provide for management of the property by the insolvent and granting of allowance to him and also his right to receive the surplus remaining after payment in full of his creditors with interest. Mr. S. Ravi submits that section 160 of the Act deals with representative assessee and the case of an insolvent does not fall under any one of the clauses of sub-section (1) of section 160, as such, the official receiver cannot be treated as a representative assessee of the insolvent. His contention is that from the date of vesting of the property in the official receiver till an order is passed by the court discharging him as insolvent, he has no right or interest in the property and that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lise or otherwise deal with his security, in the same manner as he would have been entitled to realise or deal with it if this section had not been passed. (7) An order of adjudication shall relate back to, and take effect from, the date of the presentation of the petition on which it is made. Sub-section (1) of section 28 casts an obligation on the insolvent to aid to the utmost of his power in the realisation of his property and the distribution of the proceeds among his creditors. Sub-section (2) thereof directs that on the making of an order of adjudication, the whole of the property of the insolvent shall vest in the court or in a receiver and shall become divisible among the creditors. It also provides that no creditor, to whom the insolvent is indebted in respect of any debt provable under this Act, can have any remedy against the property of the insolvent in respect of the debt during the pendency of the insolvency proceedings. The debtor is also barred from commencing any suit or other legal proceedings against the property of the insolvent, except with the leave of the court and on such terms as the court may impose. Sub-section (3) enumerates the properties o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of a non-resident specified in sub-section (1) of section 9, the agent of the non-resident, including a person who is treated as an agent under section 163 ; (ii) in respect of the income of a minor, lunatic or idiot, the guardian or manager who is entitled to receive or is in receipt of such income on behalf of such minor, lunatic or idiot ; (iii) in respect of income which the Court of Wards, the Administrator-General, the Official Trustee or any receiver or manager (including any person, whatever his designation, who in fact manages property on behalf of another) appointed by or under any order of a court, receives or is entitled to receive, on behalf or for the benefit of any person, such Court of Wards, Administrator-General, Official Trustee, receiver or manager ; (iv) in respect of income which a trustee appointed under a trust declared by a duly executed instrument in writing whether testamentary or otherwise (including any wakf deed which is valid under the Mussalman Wakf Validating Act, 1913 (6 of 1913)), receives or is entitled to receive on behalf, or for the benefit of any person, such trustee or trustees; (v) in respect of income which a trustee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se is that an undischarged insolvent has, in respect of after acquired property, movable and immovable, a right against all the world except the official assignee and he can sue to recover such property if the official assignee does not intervene. For the reasons already mentioned, this judgment also is of no assistance to the Revenue. In Fruit and Vegetable Merchants Union v. Delhi Improvement Trust, AIR 1957 SC 344, the Supreme Court was considering the provisions of the U. P. Town Improvement Act and the Rules made thereunder. In paragraph 19, the Supreme Court has explained the concept of vesting in the following words : It would thus appear that the word ' vest ' has not got a fixed connotation, meaning in all cases that the property is owned by the person or the authority in whom it vests. It may vest in title, or it may vest in possession, or it may vest in a limited sense, as indicated in the context in which it may have been used in a particular piece of legislation. Having regard to the provisions of the Improvement Act, the Supreme Court has held that when the provisions speak of a certain building or street or square or other land vesting in a mun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the receiver not only gives the court or the receiver the right to take possession of the property and deal with it in a certain manner but amounts to a legal transfer of the right, title and interest of the insolvent in the court or the receiver as the case may be and as a result of the vesting, the property for the purposes of the Insolvency Court becomes the property of the court or the receiver and ceases to be the property of the insolvent. After the order of adjudication either the court or the receiver, as the case may be, becomes owner and the insolvent is divested of his rights with respect to the property under adjudication. In Raghunath Keshava Kharkar v. Ganesh, AIR 1964 SC 234, the question before the Supreme Court was whether an insolvent, after obtaining absolute discharge, can maintain a suit for recovery of property. In that case, the trial court held that the suit was maintainable, but the High Court reversed that order and opined that the suit was not maintainable. In paragraph 27, Justice K. N. Wanchoo, speaking for the Division Bench of the Supreme Court, observed : An insolvent is entitled to get back any undisposed of property as surplus when an abs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eiver manages the properties for the benefit of the body of creditors and is a trustee for them. Reverting to section 160(1)(iii) of the Act, we have already recorded the conclusion that it applies to a case where the property is managed on behalf of another. In view of the conclusion reached above, we have to hold that the official receiver held the property for and on behalf of the creditors and not on behalf of the insolvent. Therefore, he cannot be treated as representative assessee of the insolvent. Mc Meekin, In re [1973] 48 TC 725, which is a case decided by the Queen's Bench Division of the High Court of Justice, Northern Ireland, the properties of a bankrupt vested in the official assignee in Northern Ireland. Some of the properties were the subject-matter of mortgage on the date of adjudication. The official assignee sold the properties in the year 1969-70 which resulted in chargeable gain (capital gain) for that year. The official assignee applied to the court for directions, inter alia, on the questions (a) whether capital gains tax was payable in respect of the gains relating to (i) any of the properties, (ii) the mortgaged properties ; (b) in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the controversy. Therefore, having heard learned counsel for the parties, we reframe the first question as under : Whether, on the facts and in the circumstances of the case and in law, the Tribunal is correct in holding that the official receiver is not a representative assessee of the insolvent (debtor) under the provisions of section 160(1)(iii) in respect of the capital gains derived on the sale of the property of the insolvent ? For the aforementioned reasons, we answer this (the first) question in the affirmative, i.e., in favour of the assessee and against the Revenue and the second question in the negative, i.e., in favour of the Revenue and against the assessee. In view of our answer to questions Nos. 1 and 2 we do not consider it necessary to express any opinion on question No. 3. The Tribunal shall pass necessary consequential orders having regard to the answers to the said questions. The answer to the fourth question, referred to above, is covered by the judgment of this court in CIT v. Smt. Kaziamunnisa Begam [1995] 213 ITR 172. Following that judgment, we answer this question in the negative, i.e., in favour of the Revenue and against the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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