Civil Appeal No 1348 NT of 1974 From the Judgment and order dated 711974 of the Allanabad High Court in ITR No 364 of 1971
SC Manchanda VJ Francis NM Popli and Ujjal Singh for the Appellant
V Gouri Shankar and Miss A Subhashini for the Respondent
The Judgment of the Court was delivered by PATHAK J
This appeal is directed against the judgment of the Allahabad High Court answering the following question in the negative 1
Whether on the facts and in the circumstances of the case the Tribunal was justified in holding that the provisions of sections 102 vii of the Income tax Act 1922 were not attracted 2
Whether on the facts and in the circumstances of the 201 case the Tribunal was justified in holding that the sale had taken place before 141956 and therefore the provisions of section 12B of the Income tax Act 1922 were not attracted The assessee a public limited company was put into liquidation under the orders of the Allahabad High Court
An amount of Rs 85889356 was payable by the assessee to the State of Uttar Pradesh on account of arrears of cane cess
In proceedings for recovery of that amount as arrears of land revenue the Collector of Deoria attached the assessees mills and put them to auction sale on November 10 1955
The land building machinery and parking grounds were sold for Rs 2400000 while the moveable properties including mill stores spare parts tools and equipment were sold for Rs 180000
All the properties were purchased by the Kanpur Sugar Works P Ltd Although the sale was held on November 10 1955 the sale certificate under rule 285 M of the UP Zamindari Abolition and Land Reforms Rules 1952 could not be issued till July 4 1956 on account of objections raised by the assessee in spite of the fact that the entire amount of purchase money of Rs2580000 had been paid by the purchasers on December 8 1955
During the period in which the objections were pending ie November 10 1955 to July 2 1956 the Government of India appointed an Authorised Controller to run the sugar mills by a notification dated November 25 1955
After possession of the mills was given to the purchasers a suit was filed by them against the assessee claiming damages for loss of profits on account of the possession of the mills not having been delivered to them immediately after the auction sale
In the suit the purchasers claimed in the alternative compensation for loss of interest on Rs2580000 from the date of deposit of the sale price to the date of delivery of the mills
The claim of the purchasers was ultimately settled by compromise for a sum of Rs125000
In assessment proceedings for the assessment year 1957 58 the relevant accounting period being the year ended October 31 1956 the Income tax Officer called upon the assessee to explain why the excess amount which the assessee had received on sale of the building machinery and plant over the difference between the original and the written down value should not be subjected to tax under cl
vii of sub section
2 of section 10 and under section 12B of the Indian Income Tax Act 1922
The assessee replied stating that 1 simultaneous computation 202 of income under cl
vii of sub section
2 of section 10 and of capital gains under section 12B amounted to double taxation and was against the principles of natural justice and the legislative intention 2 the sale being a compulsory sale was not a sale within the meaning of cl
vii of sub section
2 of section 10 3 moveable property was exempt from capital gains tax and 4 as the sale was complete before April 1 1956 it did not attract the provisions relating to capital gains which became effective from April 1 1956 only
Alternatively it was claimed that the value of the mills as on January 1 1954 was much higher than that determined and the assessee was not liable to tax on capital gains
The Income tax Officer rejected the contentions raised by the assessee and completed the assessment under sub section
3 of section 23 read with sub section
1A of section 34 of the Indian Income tax Act 1922 on March 29 1965 computing the profits under cl
vii of sub section
2 of section 10 at Rs 1007000 and the capital gains at Rs 1023210
The Income tax Officer did not find any substance in the assessee s contention that the value of the fixed assets of the mills was Rs 1850000 as on January 1 1954 and that there was no justification for initiating the assessment proceedings under sub section
1A of section 34 of the Indian Income tax Act 1922
On appeal by the assessee the Appellate Assistant Commissioner by his order dated May 1 1968 agreed with the Income tax Officer that the sale attracted cl
vii of sub section
2 of section 10 that it took place on July 4 1956 and that the assessee was therefore liable to capital gains under section 12B
But contrary to the view taken by the Income tax Officer the Appellate Assistant Commissioner held that the assessee was entitled to substitute the market value of the machinery as on January 1 1954 in place of its cost price under cl
iii of section 12B and accordingly reduced the capital gains from Rs 1023210 to Rs489343
Both the Revenue and the assessee filed appeals before the Income tax Appellate Tribunal
Before the Appellate Tribunal it was the case of the assessee that while an auction sale may be a sale within the meaning of section 12B it was not a sale as contemplated under cl
vii of sub section
2 of section 10
It was urged that a compulsory sale was not a sale for the purposes of cl
vii of sub section
2 of section 10
It was also urged that as the auction sale had taken place prior to March 31 1956 the assessee was not liable to tax on capital gains at all
The Appellate Tribunal by its order dated January 31 1970 allowed the assessee s appeal and dismissed the Revenue appeal
It accepted both the contentions of the assessee and did not find it necessary to go into the question whether 203 the Appellate Assistant Commissioner was right in substituting the market value of the machinery as on January 1 1954 in place of its cost price under cl
iii of section 12B
At the instance of the Commissioner of Income tax Lucknow the Appellate Tribunal referred the two questions of law set out earlier to the High Court for its opinion
On January 7 1974 the High Court pronounced judgment in the reference in favour of the Revenue
And now this appeal
Shri SC Manchanda appearing for the assessee has raised two points before us
The first contention is that cl
vii of sub section
2 of section 10 of the Indian Income tax Act 1922 has no application because a sale effected for recovering arrears of cane cess as an arrear of land revenue is not a voluntary sale and does not fall within the terms of the relevant statutory provisions
The second contention is that the sale must be regarded as having taken place on November 10 1955 when the auction was held and not on July 4 1956 when the sale certificate was issued and that being so section 12B which took effect from April 1 1956 does not extend to the sale
These are the only two contentions before us and in our opinion they can be disposed of shortly
Clause vii of sub section
2 of section 10 of the Indian Income tax Act 1922 provides for the computation of profits and gains chargeable to tax under the head business  after making the following allowances vii in respect of any such building machinery or plant which has been sold or discarded or demolished or destroyed the amount by which the written down value thereof exceeds the amount for which the building machinery or plant as the case may be is actually sold or its scrap value Provided that such amount is actually written off in the books of the assessee Provided further that where the amount for which any such building machinery or plant is sold whether during the continuance of the business or after the cessation thereof exceeds the written down value so much of the excess as does not exceed the difference between the original cost and the written down value shall be deemed to be 204 profits of the previous year in which the sale took place xxx xxxx xxxxx The argument for the assessee is that the word sold in the clause refers to a sale transaction affected on the free volition of the seller and not where it is in the nature of a compulsory transfer for recovering an arrear of land revenue
Reliance is placed on Calcutta Electric Supply Corporation Ltd vs Commissioner of Income tax West Bengal  where the Calcutta High Court laid down that the word sale in its ordinary meaning was a transaction entered into voluntarily between two persons the buyer and the seller and that therefore the requisition of an electricity generating plant by the Government under sub rule 1 of rule 83 of the Defence of India Rules not being a voluntary sale did not fall within the mischief of cl
vii of sub section
2 of section 10
Our attention has also been drawn to Indian Steel  Wire Products Ltd vs State of Madras  In that case this Court was called upon to consider whether the supplies by the appellant of certain steel products to various persons in the State of Madras under the Iron and Steel Control of Production and Distribution Order 1941 could be regarded as sales for the purposes of the Madras General Sales Tax Act
The Court observed that the transactions must be treated as sales because the element of mutual assent was not excluded altogether from the transactions
Learned counsel seeks support from that case in support of his submission that the element of consent is essential to the character of a sale
A third case RB Lachman Das Mohanlal  Sons vs Commissioner of Income tax UP has been placed before us but nothing said therein is truly apposite to the limited question before us
We have given the matter careful consideration and we think for the reasons which follow that there is no escape from the conclusion that the transaction in this case constitutes a sale for the purposes of cl
vii of sub section
2 of section 10
The levy of cane cess was imposed under a statute in respect of an activity carried on voluntarily by the assessee
When entering upon and carrying out that activity the assessee was fully conscious that he did so subject to the provisions of the statute
The statute provided for the levy of cane cess and its recovery in the event of default of payment as arrears of land revenue
What was done in the present case 205 was to recover the arrears of cane cess as arrears of land revenue
All along therefore the assessee was aware that when it entered upon and carried out an activity attracting cane cess it was exposing itself to recovery proceedings as arrears of land revenue
The assessee was aware that recovery could be affected by an auction sale of its properties
It can be inferred from the circumstance that by embarking upon the activity which attracted cane cess the assessee agreed to be bound by the structural framework imposed by the statute around that activity and therefore agreed to an auction sale of its properties as arrears of land revenue in the event of its failure to pay the cane cess
We are not satisfied that the element of consent is absent altogether from the transactions considered in this case
We are clearly of opinion that the sale of the properties of the assessee fall within the scope of cl
vii of sub section
2 of section 10 of the Indian Income tax Act 1922 and therefore the first contention must be rejected
Turning to the second contention the question is whether the sale can be said to have taken place when the properties were auctioned or on the date when the sale certificate was issued
The recovery of an arrear of land revenue in Uttar Pradesh is governed by the provisions of the UP Zamindari Abolition and Land Reforms Act and the Rules made thereunder
We have been taken through the pertinent provisions of that Act and its Rules
The High Court in the judgment under appeal has made detailed reference to them and in an admirable exposition of the law has demonstrated that the date on which the sale certificate was issued is the date on which the sale must be regarded as having taken place
We have no hesitation in endorsing that view
Section 279 of the UP Zamindari Abolition and Land Reforms Act specifies the modes for the recovery of an arrear of Land revenue and section 282 prescribes the procedure for the attachment and sale of moveable property
Section 286 empowers the Collector to proceed against other immoveable property belonging to the defaulter
Rule 281 authorises the Collecter to sell immovable property and upon the property being auctioned under the Rules and the objections if any thereto having been considered and disposed of provides for confirmation of the sale by an order of the Commissioner
Rule 285 M provides that the Collector shall thereupon put the person declared to be the purchaser into possession of the property and shall grant him a certificate to the effect that he has purchased the property to which the certificate refers and that such certificate shall be deemed to be a valid transfer of such property
It is apparent that it is only after the sale is confirmed and a certificate is granted that the 206 property stands transferred and the purchaser becomes the owner of the property
Rule 285 M is explicit
The certificate operates as a transfer of the property
As before the High Court learned counsel for the assessee relies on section 65 of the Code of Civil Procedure in support of his submission that the property shall be deemed to have vested in the purchaser from the time when the property is sold and not from the time when the sale becomes absolute
The application of section 65 turns upon the scope of section 341 of the UP Zamindari Abolition and Land Reforms Act which applies the provisions of the Code of Civil Procedure to the proceedings taken under that Act
section 341 however applies the Code only so far as it can be applied consistently with the Act and not in derogation of it
As is clear the procedure incorporated in the UP Zamindari Abolition and Land Reforms Act and the Rules made under it specifically exclude the operation of section 65
When the sale certificate itself operates as effecting the transfer of the property no question arises of relating the transfer back to the date of auction
It is true that the order of the Commissioner confirming the sale refers back to the auction which has already taken place but that is hardly of any moment in view of the terms of Rule 285M
We see no force in the second contention
In the result the appeal fails and is dismissed with costs
PSS Appeal dismissed


Summary:
Section 279 of the UP Zamindari Abolition and Land Reforms Act specifies the modes for the recovery of an arrear of land revenue
Rule 281 of the Rules framed under the Act authorises the Collector to sell the attached immovable property of a defaulter by auction and provides for confirmation of the sale by an order of the Commissioner
Rule 285 M requires the Collector to grant the purchaser a certificate that he has purchased the property and provides that such certificate shall be deemed to be a valid transfer of such property
A certain amount was payable by the assessee to the State on account of arrears of cane cess which was recoverable as arrears of land revenue
In proceedings for its recovery the Collector attached the assesse s mills and put them to auction sale on November 10 1955
The entire amount of purchase money had been paid on December 8 1955
However the requisite sale certificate under r 285 M could not be issued till July 4 1956 on account of the objections raised by the assessee
In assessment proceedings for the assessment year 1957 58 the 199 Income tax officer called upon the assessee to explain why the excess amount which he had received on sale of the buildings machinery and plant over the difference between the original and the written down value should not be subjected to tax under cl
vii of sub section
2 of section 10 and under section 12B of the Indian Income tax Act 1922
The assessee contended i that an auction sale being a compulsory sale was not a sale within the meaning of cl
vii of sub section
2 of section 10 and ii that the sale having been completed prior to March 31 1956 it did not attract the provisions of section 12B relating to capital gains which became effective from April 1 1956 only
The Income tax officer rejected the aforesaid contentions and computed the profits under section 10 2 vii at Rs1007000 and the capital gains under section 12B at RS 10 23 210
The matter ultimately went before the High Court which decided in favour of the Revenue
In the assessee s appeal to this Court it was contended i that cl
vii of sub section
2 of section 10 of the Income tax Act 1922 had no application because an auction sale was not a voluntary sale and ii that the sale must be regarded as having taken place on November 10 1985 when the auction was held and not on July 4 1956 when the sale certificate was issued for the property should be deemed to have vested in the purchaser from the time when it was sold and not from the time when the sale became absolute and that being so section 12B did not extend to the sale
Dismissing the appeal the Court  HELD 1
The sale of the properties of the assessee falls within the scope of cl
vii of sub section
2 of section 10 of the Indian Income tax Act 1322
it cannot be said that the element of consent essential to the character of a sale was absent altogether from the transaction
The levy of cane cess was imposed under a statute in respect of an activity carried on voluntarily by the assessee
When entering upon and carrying out that activity the assessee was fully conscious that he did so subject to the provisions of the statute and that in the event of default of payment of cane cess it was exposing itself to recovery proceedings as arrears of land revenue
The assessee was also aware that recovery could be affected by an auction sale of its property
The assessee thereby agreed to be bound by the structural framework imposed by the statute around the activity
and therefore agreed to an auction sale of its properties in the event of its failure to pay the cane cess
205C  204G H 205A C Calcutta Electric Supply Corporation Ltd vs Commissioner of 200 Income tax West Bengal  Indian Steel  Wire Products Ltd vs State of Madras   and RB Lachman Das Mohanlal  Sons vs Commissioner of Income tax UP  referred to 2
The date on which the sale certificate was issued should be the date on which the sale must be regarded as having taken place
It is only when the property is transferred that it can be deemed to nave vested in the purchaser
Rule 285 M of the UP Zanmindari Abolition and Land Reforms Act is explicit in its terms
When the sale certificate itself operates as effecting the transfer of the property no question arises of relating the transfer back to the date of auction
205E 260A B The procedure incorporated in the UP Zamindari Abolition and Land Reforms Act and the Rules made under it specifically exclude the operation of section 65 of the Code of Civil Procedure
Section 341 of that Act applies the Code only so far it is consistent with the provisions of the Act and not in derogation of it
206B C