Case: James Anderson Vs. The Commissioner Of Income-Tax,Bombay

who owned the assets before the distribution and who alone can be liable to tax under the section. If, therefore, the correct interpretation of the third proviso is distribution of capital assets in specie, the proviso does not serve any purpose. Therefore, Mr. Palkhivala has argued that the expression "distribution of capital assets" must be given a meaning which will fulfil a purpose and correlate the proviso to the substantive provision in sub-S. (1). That meaning, according to him, is distribution of sale proceeds of capital assets.7. We are unable to accept the argument as correct. Firstly, having regard to the definition of the expression "capital assets", it would be wrong to read" distribution of capital assets" as meaning "distribution of sale proceeds of capital assets". Obviously, there is a clear and vital distinction between "capital assets" and their "sale preceeds". If capital assets are sold first and a distribution of the sale proceeds is made afterwards, then the sale proceeds distribution and what is distributed is not capital assets but the sale proceeds thereof. Secondly, we do not agree that the third proviso serves no purpose if the expression "distribution of capital assets" is given its natural and plain meaning, viz. distribution in specie. The High Court expressed the view that by the proviso the legislature might have intended to protect an assessee from a possible argument by the Revenue that when (to take an example appropriate to the case) an executor or administrator transferred the estate or part of the estate to the person entitled to it, there was a transfer within the meaning of sub-s. (1) of S. 12B. To us it seems that the purpose of the proviso is abundantly clear if the scheme of sub-ss. (1), (2) and (3) is kept in mind. Assume that there is a distribution of capital assets in specie amongst the legatees, and one of the legatees sells the capital assets which he got in one of the ways mentioned in the third proviso; he at once becomes liable to tax on the profits made on the sale. Sub-section (3) makes that position clear and if the proviso is read in the context of the substantive provisions of S. 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-s. (1). Indeed, Mr. Palkhivala was forced to concede that in view of the provisions of sub-s. (3) of S. 12B, the expression "distribution of capital assets" must also mean distribution in specie because under sub-s. (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 with the scheme of sub- ss. (1), (2) and (3) of S. 12B of the Act. It is necessary to point out here that on the interpretation sought to be placed on the third proviso on behalf of the appellant, the administrator will escape paying tax if he sells the capital assets; but the legatee will not escape if he sells the capital assets after having received them in specie from the administrator. This is an anomaly which is against the scheme of S. 12B of the Act.We are accordingly of the view that the High Court rightly held that the expression "distribution of capital assets" in the third proviso to sub-s. (1) of S. 12B of the Act means distribution in specie and not distribution of sale proceeds. 8. In the High Court an alternative argument was also presented on behalf of the assessee to the effect that the third provisos contemplated involuntary transfers. This argument was based on the use of the expression by reason of in the proviso, and the proviso was sought to be read as follows (omitting words not relevant to the case):"Provided further that any transfer of capital assets by reason of any distribution of capital assets under a........... will ..... shall not for the purposes of this section be treated as sale, exchange or transfer of the capital assets." The argument was that inasmuch as the administrator sold the shares and securities for the purpose of distributing the sale proceeds to the legatees, the sale was involuntary and was necessitated by reason of the terms of the will; therefore, he was protected under the third proviso. The High Court repelled this argument and for good reasons.Firstly, the question whether the sale was voluntary or involuntary is not germane to the scheme of S. 12B. Secondly, on a proper reading of the proviso, the expression by reason of goes with the clause relating to compulsory acquisition of property and not with the distribution of capital assets. 9. The position seems to us to be so clear that it is unnecessary to labour it or to refer to decided cases. Such decisions of the High Courts as have been brought to our notice are all one way and they take the same view as was taken by the High Court in the decision under appeal (see Sri Kannan Rice Mills Ltd. v. Commissioner of Income-tax, Madras, 1954-26 ITR 351 (Mad); Commissioner of Income-tax, Bombay North v. Walji Damji, 1955-28 ITR 914 : (AIR 1956 Bom 438 ); and Gowri Tile Works v. Commissioner of Income-tax, Madras, 1957-31 ITR 250: (AIR 1957 Mad 453 )

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]4. The question whether the levy of capital gains under S. 12B is ultra vires no longer survives by reason of the decision of this Court in Navinchandra Mafatlal v. Commissioner of Income-tax 1954-26 ITR 758  : 1955 SCR 829: ( (S) AIR 1955 SC 58  ). This question was not therefore pressed before us. The question under S. 24B was also not seriously pressed.The view of the Bombay High Court that S. 24B does not limit the liability of the Administrator or Executor of the cases referred to under the 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 that as any other individual. This position has not been seriously contested before usIf the appellant comes within that ambit, then the sales which he made of the shares and securities will not be treated as transfer within the meaning of sub-s. (1)7. We are unable to accept the argument as correct. Firstly, having regard to the definition of the expression "capital assets", it would be wrong to read" distribution of capital assets" as meaning "distribution of sale proceeds of capital assets". Obviously, there is a clear and vital distinction between "capital assets" and their "sale preceeds". If capital assets are sold first and a distribution of the sale proceeds is made afterwards, then the sale proceeds distribution and what is distributed is not capital assets but the sale proceeds thereof. Secondly, we do not agree that the third proviso serves no purpose if the expression "distribution of capital assets" is given its natural and plain meaning, viz. distribution in specie. The High Court expressed the view that by the proviso the legislature might have intended to protect an assessee from a possible argument by the Revenue that when (to take an example appropriate to the case) an executor or administrator transferred the estate or part of the estate to the person entitled to it, there was a transfer within the meaning of sub-s. (1) of S. 12B. To us it seems that the purpose of the proviso is abundantly clear if the scheme of sub-ss. (1), (2) and (3) is kept in mind. Assume that there is a distribution of capital assets in specie amongst the legatees, and one of the legatees sells the capital assets which he got in one of the ways mentioned in the third proviso; he at once becomes liable to tax on the profits made on the sale. Sub-section (3) makes that position clear and if the proviso is read in the context of the substantive provisions of S. 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-s. (1). Indeed, Mr. Palkhivala was forced to concede that in view of the provisions of sub-s. (3) of S. 12B, the expression "distribution of capital assets" must also mean distribution in specie because under sub-s. (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 with the scheme of sub- ss. (1), (2) and (3) of S. 12B of the Act. It is necessary to point out here that on the interpretation sought to be placed on the third proviso on behalf of the appellant, the administrator will escape paying tax if he sells the capital assets; but the legatee will not escape if he sells the capital assets after having received them in specie from the administrator. This is an anomaly which is against the scheme of S. 12B of the Act.We are accordingly of the view that the High Court rightly held that the expression "distribution of capital assets" in the third proviso to sub-s. (1) of S. 12B of the Act means distribution in specie and not distribution of sale proceeds9. The position seems to us to be so clear that it is unnecessary to labour it or to refer to decided cases. Such decisions of the High Courts as have been brought to our notice are all one way and they take the same view as was taken by the High Court in the decision under appeal