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2003 Supreme(SC) 95
2003(1) Supreme 942
SUPREME COURT OF INDIA
(From Madras High Court)
Mrs. Ruma Pal & B.N. Srikrishna, JJ.
N. Bagavathy Ammal -Appellant
versus
Commr. of Income Tax, Madurai & Anr. -Respondents
Civil Appeal Nos. 2606-2607 of 2001
Decided on 27-1-2003
Counsel for the Parties :
For the Appellant : T.L.V. Iyer, Sr. Advocate Subramonium Prasad, Abhay Kumar, R. Gopalakrishnan, Advocates.
For the Respondents : Rajiv Tyagi, B.V. Balramdas, Advocates.
IMPORTANT POINT
High Court was right in holding that invocation of Section 2(14) of Income Tax Act, 1961 which defines capital assets is unnecessary for the purpose of construing the word "assets" in Section 46(2) of the Act.
Headnote:Income Tax Act, 1961-Sections 46 and 46(2) and 2(14)-"Assets" and "capital assets"-Whether the words "assets" in Section 46(2) be understood and construed according to definition of the word capital assets in Section 2(14)-Tribunal holding "yes" but High Court holding it has no relevance-Appeal to Supreme Court-Whether High Court is right? (Yes)-Appeal dismissed.
Held : Section 46(2) is in terms an independent charging Section. It also provides for a distinct method of calculation of capital gains. (Para 15)
Held therafter : The Section does not make any reference to capital assets either in connection with the imposition of capital gains tax nor its computation. Having referred to capital asset in Section 45(1), 47 and 48, Parliament appears to have deliberately chosen to use the word asset in Section 46(1) and (2), the ostensible intention being to bring assets of all kinds within the scope of the charge. It is not necessary to refer to a dictionary to hold that capital assets are a species of the genus assets , if the words capital assets and assets as used in Sections 45(1) and 46 respectively did not overlap then there was no need to provide for a non obstante clause in Section 46(1) with reference to Section 45. As correctly held by the High Court, agricultural land would have been a capital asset but for the exclusion from the definition of capital asset and what is not a capital asset may yet be an asset for the purposes of S. 46(2). Therefore, to the extent that a shareholder assessee receives assets whether capital or any other from the company in liquidation, the assessee is liable to pay tax on the market value of the assets as on the date of the distribution as provided under Section 46(2). That appears to be the plain meaning of the section and we see no reason to construe it in any other fashion. The invocation of Section 2(14) of the Act which defines "Capital asset" is as such unnecessary for the purpose of construing Section 46(2). (Paras 16, 17 and 18)
Held finally : We accordingly dismiss the appeals without any order as to costs. (Para 19)
JUDGMENT
Ruma Pal, J.-The question to be decided in these appeals is whether the word assets in Section 46(2) of the Income Tax Act, 1961 (referred to hereafter as the Act ) must be understood and construed according to the definition of the word capital assets in Section 2(14) of the Act.
2. The issue arises in respect of the assessment year 1970-71. The appellants in the two appeals which are disposed of by this judgment are sisters. They were share holders in M/s Palkulam Estate (Private) Ltd. Nagercoil (referred to hereafter as the Company ). The Company went into liquidation in 1964. Pursuant to a compromise decree dated 22nd December 1969 in litigation between the assessees and their brother (who was also a share holder in the company), and the company represented by the liquidator, the assets of the company which included agricultural lands were distributed to the appellants and eight others. The compromise decree stated:
"This Court doth further order and decree that as far as liabilities of Palkulam Estate Private Limited is concerned, the immovable properties be and hereby are distributed as indicated in Schedule A of the Compromise. The respondents 1 to 5 and respondents 9 to 11 do get leased portions as shown in the plans, signed by liquidator Mr. K.M. Boothalingam Pillai and handed over to the appellant this day."
3. The appellants thereby received 479.89 acres of the agricultural lands prior to the end of the relevant accounting year that was 31.3.70. The assessment in respect of the year 1970-71 had been completed on 27.2.71. The income Tax Officer reopened the assessments under Section 148 of the Act. The appellants filed their returns in respect of the two notices under Section 148. The contention of the appellants that in terms of the definition of assets in Section 2(14), agricultural lands were entitled to be excluded while computing capital gains on assets received by the shareholder from a company in liquidation under Section 46(2) was not accepted. According to the assessing officer, Section 46(2) refers only to money received on liquidation or the market value of the assets on the date of distribution and it was immaterial whether the asset was agricultural lands or otherwise. The value of the share of agricultural lands transferred to each appellant was, therefore, included as income subject to capital gains and subjected to tax. The assessees appeals before the Commissioner of Income Tax (Appeals) were allowed by holding that the scope of Section 46(2) would have to be read in the light of the definition of the word capital asset in Section 2(14) and that "having exempted agricultural lands from capital gains under the general provision, it was difficult to interpret Section 46(2) as including agricultural land". The action of the Income Tax Officer in charging the income of the distribution of agricultural lands as capital gains Under Section 46(2) of the Act was accordingly set aside.
4. The Revenue appealed before the Tribunal. The Tribunal dismissing the Revenue s appeal held:
On a combined reading of Section 45, 46(2) and 48 it will be clear, according to our opinion, that assets mentioned in Section 46(2) would mean capital assets. In as much as Section 47 (viii) exempts transfer of agricultural lands from capital gain tax under Section 45, we agree with the Commissioner of Income Tax (Appeals) in coming to the conclusion that it is difficult to interpret Section 46(2) as including agricultural lands which is outside the scope of the Income Tax."
5. Of the two questions referred to the High Court by the Tribunal under Section 256(1) at the instance of the Revenue only one survives for our decision. The second question was not pressed before the High Court. The first question which was;
"Whether on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that the assets mentioned in section 46(2) would mean capital asset as defined in sectio
