Case: Commissioner Of Income Tax, Madras Vs. M/S. Madurai Mills Co. Limited

to sale, exchange, relinquishment or transfer of the assets. The revenue, in the circumstances, cannot derive much assistance from that case. 9. In the case of Commr. of Income-tax v. Dewas Cine Corpn. 68 ITR 240 = (AIR 1968 SC 676 ) this Court while dealing with Section 10 (2) (vii) of the Act observed that the expression "sale" in its ordinary meaning is a transfer of property for a price and adjustment of the rights of the partners in a dissolved firm by allotment of its assets is not a transfer nor it is for a price. In that case the assets were distributed among the partners and it was contended that the assets must in law be deemed to be sold to the individual partners in consideration of their respective shares, and the difference between the written-down value and the price realised should be included in the toted income of the partnership under the second proviso to Section 10 (2) (vii). This Court in this context observed that a partner may in an action for dissolution insist that the assets of the partnership be realised by sale of its assets, but property allotted to a partner in satisfaction of his claim to his share, could not be deemed in law to be sold to him. 10. In Commr. of Income-tax v. Associated Industrial Development Co. P. Ltd. (1969) 73 ITR 50 (Cal) a Division Bench of the Calcutta High Court held that the amount received by a share-holder on the liquidation of a company was not assessable to capital gains as there was no sale, exchange, relinquishment or transfer of the capital assets. Similar view has also been taken by the Gujarat High Court in Commr. of Income Tax v. R. M. Amin, 82 ITR l94 = (1972 Tax LR 226 (Guj) ). 11. We are, therefore, of the view that distribution of the assets of the companies in liquidation does not amount to a transaction of sale, exchange, relinquishment or transfer so as to attract Section 12B of the Act. 12. Mr. Manchanda on behalf of the appellant has invited our attention to the third proviso to sub-section (1) of Section 12B as originally enacted by the Income-tax and Excess Profit Tax (Amendment) Act wherein it was stated, inter alia, that any distribution of capital assets on the dissolution of a firm or other association of persons or on the liquidation of a company shall not for the purpose of Section 12B be treated as sale, exchange or transfer of capital assets. It is urged that the omission of such distribution of capital assets in the first proviso to sub-section (l) of section 12B, as revived by the Finance (No. 3) Act of 1956, would show that the legislature wanted the distribution of capital assets on dissolution of a firm or other association of persons or the liquidation of a company to be treated as sale, exchange or transfer. This contention, in our opinion, is not well founded. It appears to us that the cases of the distribution of capital assets on dissolution of a firm or other association of persons or liquidation of a company were mentioned in the third proviso under the earlier Act, as a matter of clarification to allay fears even though the language of sub-section (1) of S. 12B was not intended to apply to such cases. Provisos, as mentioned on page 221 of Craies on Statute Laws, Sixth Edition, are often inserted to allay fears. A proviso is inserted to guard against the particular case of which a particular person is apprehensive, although the enactment was never intended to apply to his case or to any other similar case at all. 13. We have already stated earlier that the distribution of assets by a liquidator on the voluntary winding up of a company cannot constitute sale, transfer or exchange for the purpose of sub-section (1) of S. 12B of the Act. If the language of sub-section (1) of Section 12B of the Act is clear and does not warrant the inference that distribution of assets on liquidation of a company constitutes sale, transfer or exchange the said transaction of distribution of assets would not, in our opinion, change its character and acquire the attributes of sale, transfer or exchange because of the omission of a clarification in the first proviso to sub-section (1) of Section 12B of the Act, even though such a clarification was there in the third proviso of the section inserted by the earlier Act (Act 22 of 1947). It is well settled that considerations stemming from legislative history must not be allowed to override the plain words of a statute (see Maxwell on the Interpretation of Statutes, Twelfth Edition; page 65). A proviso cannot be construed as enlarging the scope of an enactment when it can be fairly and properly construed without attributing to it that effect. Further, it the language of the enacting part of the statute is plain and unambiguous and does not contain the provisions which are said to occur in it, one cannot derive these provisions by implication from a proviso (see page 217 of Craies on Statute Law, Sixth Edition). 14. In the light of what has been discussed above, the difference between the language of the first proviso to Section 12 (B) (1), as inserted by Finance (No. 3) Act of 1956 and the third proviso to Section 12 (b) (1), as inserted by Act 22 of 1947, cannot be of much material help to the revenue. 15. Reference has also been made by Mr. Manchanda to Section 46 of the Income-tax Act, 1961 which contains a provision for charging with capital gains the money or assets received by a share-holder on the liquidation of a company. The liability under that section arises from its express provisions. It cannot, however, be said that such a liability would also arise even in the absence of such provisions under the Act of 1922.

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

Explanation:
0[ds]We, however, find ourselves unable to accede to this contention. The act of each of the liquidators in distributing the assets of the company which had gone into voluntary liquidation did not result in the creation of new rights. It merely entailed recognition of legal rights which were in existence prior to the distribution. According to observations on page 512 of Buckleys Commentaries on the Companies Act, Thirteenth Edition, a liquidator is only a trustee in the sense that the property of the company ceases upon the winding up to belong beneficially to the company and passes into his custody, to be applied by him as directed by the statuteWhen a share-holder receives money representing his share on distribution of the net assets of the company in liquidation, he receives that money in satisfaction of the right which belonged to him by virtue of his holding the shares and not by operation of any transaction which amounts to sale, exchange, relinquishment or transfer. In the circumstances, we find it difficult to hold that the assessee company is liable to pay tax on capital gains as contemplated by Section 12B of the Act in respect of the amount of Rs. 95,944In the present case there has been no sale or receipt of price but only a distribution of the assets of the companies which had gone into voluntary liquidation. Such a transaction does not amount to sale, exchange, relinquishment or transfer of the assets. The revenue, in the circumstances, cannot derive much assistance from that case11. We are, therefore, of the view that distribution of the assets of the companies in liquidation does not amount to a transaction of sale, exchange, relinquishment or transfer so as to attract Section 12B of the ActThis contention, in our opinion, is not well founded. It appears to us that the cases of the distribution of capital assets on dissolution of a firm or other association of persons or liquidation of a company were mentioned in the third proviso under the earlier Act, as a matter of clarification to allay fears even though the language of sub-section (1) of S. 12B was not intended to apply to such cases. Provisos, as mentioned on page 221 of Craies on Statute Laws, Sixth Edition, are often inserted to allay fears. A proviso is inserted to guard against the particular case of which a particular person is apprehensive, although the enactment was never intended to apply to his case or to any other similar case at all13. We have already stated earlier that the distribution of assets by a liquidator on the voluntary winding up of a company cannot constitute sale, transfer or exchange for the purpose of sub-section (1) of S. 12B of the Act. If the language of sub-section (1) of Section 12B of the Act is clear and does not warrant the inference that distribution of assets on liquidation of a company constitutes sale, transfer or exchange the said transaction of distribution of assets would not, in our opinion, change its character and acquire the attributes of sale, transfer or exchange because of the omission of a clarification in the first proviso to sub-section (1) of Section 12B of the Act, even though such a clarification was there in the third proviso of the section inserted by the earlier Act (Act 22 of 1947). It is well settled that considerations stemming from legislative history must not be allowed to override the plain words of a statute (see Maxwell on the Interpretation of Statutes, Twelfth Edition; page 65). A proviso cannot be construed as enlarging the scope of an enactment when it can be fairly and properly construed without attributing to it that effect. Further, it the language of the enacting part of the statute is plain and unambiguous and does not contain the provisions which are said to occur in it, one cannot derive these provisions by implication from a proviso (see page 217 of Craies on Statute Law, Sixth Edition)14. In the light of what has been discussed above, the difference between the language of the first proviso to Section 12 (B) (1), as inserted by Finance (No. 3) Act of 1956 and the third proviso to Section 12 (b) (1), as inserted by Act 22 of 1947, cannot be of much material help to the revenueIt cannot, however, be said that such a liability would also arise even in the absence of such provisions under the Act of 1922.