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Andhra Pradesh High Court
Judges : R.BAYAPU REDDY, S.S.M.QUADRI
Commissioner of Income Tax - Appellant
Versus
J.Narayana Murthy - Respondent
Decided On : 10-04-96
INCOME TAX - REPRESENTATIVE ASSESSEE - OFFICIAL RECEIVER - CAPITAL GAINS - AGRICULTURAL LAND - Whether the official receiver is a representative assessee under section 160(1)(iii) of the Income-tax Act, 1961 in respect of capital gains derived on the sale of the property of the insolvent? Whether the sale of the insolvent's property effected by the official receiver results in no capital gain assessable to tax? Whether there is no cost in respect of property sold by the official receiver? Whether 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?
Fact of the Case:
The assessee, an insolvent, had his properties vested in the official receiver under the Provincial Insolvency Act, 1920. The official receiver sold a portion of the insolvent's land, resulting in capital gains. The Income-tax Officer assessed the official receiver to capital gains tax, which was upheld by the Commissioner of Income-tax (Appeals). On appeal, the Income-tax Appellate Tribunal held that the official receiver was not a representative assessee under section 160(1)(iii) of the Income-tax Act, 1961, and that the sale of the insolvent's property resulted in no capital gain assessable to tax.
Finding of the Court:
The court held that the official receiver was not a representative assessee of the insolvent under section 160(1)(iii) of the Income-tax Act, 1961, and that the sale of the insolvent's property resulted in capital gains assessable to tax. The court also held that there was no cost in respect of property sold by the official receiver, and that capital gains arising on the sale of agricultural lands falling within the definition of capital asset under section 2(14)(iii) were not chargeable to income-tax under section 45 of the Income-tax Act, 1961.
Issues: 1. Whether the official receiver is a representative assessee under section 160(1)(iii) of the Income-tax Act, 1961 in respect of capital gains derived on the sale of the property of the insolvent? 2. Whether the sale of the insolvent's property effected by the official receiver results in no capital gain assessable to tax? 3. Whether there is no cost in respect of property sold by the official receiver? 4. Whether 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?
Ratio Decidendi: 1. The official receiver is not a representative assessee of the insolvent under section 160(1)(iii) of the Income-tax Act, 1961, because the property of the insolvent vests in the official receiver for the purpose of administering the estate of the insolvent, for the payment of his debts after realising his assets. The official receiver has no interest of his own in the property. 2. The sale of the insolvent's property by the official receiver results in capital gains assessable to tax, because the official receiver is the owner of the property and he is managing it for the benefit of the creditors. 3. There is no cost in respect of property sold by the official receiver, because the official receiver is not the owner of the property and he is not managing it for his own benefit. 4. 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.
Final Decision: The court answered the first question in the affirmative, the second question in the negative, and the fourth question in the negative. The court did not express any opinion on the third question.
( 1 ) IN this reference under section 256 (1) of the Income-tax Act, 1961 (for short "the Act"), at the instance of the Revenue, the following questions are referred to this court for opinion :"1. 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 under the provisions of section 160 (1) (iii) in respect of the capital gains derived on the sale of the property of the insolvent ? 2. Whether, on the facts and in the circumstances of the case and in law, the Tribunal is justified in holding that sale of the insolvents property effected by the official receiver results in no capital gain assessable to tax ? 3. Whether, on the facts and in the circumstances of the case and in law, the Appellate 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 ?"
( 2 ) 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 30/11/1974. Consequently, all the properties owned by the insolvent, including an extent of ac. 0-94 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 Rs. 3,50,000 and executed sale deeds on 16/12/1980. On the ground that the assessee had acquired that land for a sum of Rs. 25,000 on 10/12/1962, and thus capital gains accrued to him, notice under section 139 (2) of the Act was issued to the official receiver calling upon him to file the returns for the assessment year 1981-82. In response to the said notice, the official receiver filed a nil return on 4/12/1982. Before the income-tax Officer, the official receiver took the plea that no capital gains tax could be levied on the sale of the land as the property belonged to the insolvent who ceased to be the owner of the land on the passing of the adjudication order and that the creditors had stepped into the shoes of the insolvent and that as the trustee of the creditors, the official receiver was under obligation to sell the property and distribute the sale proceeds among the creditors. These submissions, however, were not accepted by the Income-tax Officer who assessed the gains resulting from the sale of the land to capital gains tax by assessment order dated 23/07/1984. The assessee filed an appeal before the Commissioner of Income-lax (Appeals), Visakhapatnam, against the said order of assessment. By order dated 27/11/1984, the Commissioner upheld the order of assessment and, inter alia, held that the said land was situate within the urban agglomeration and, therefore, capital gains arising from its sale could not be exempted as arising from the sale of agricultural land. The official receiver filed further appeal before the Income-tax Appellate Tribunal. The Appellate Tribunal accepted the contentions of the official receiver and allowed the appeal, inter alia, holding that section 160 (1) (iii) of the Act has no application to the official receiver; by the sale of the insolvents property, no gain could be said to have arisen in the hands of the official receiver and as the properties of the insolvent had vested in him, he sold the same for the benefit of the creditors and distributed the proceeds among the creditors. It is from that order, the above said questions arose.
( 3 ) BEFORE us, nobody represented the official receiver. We requested Mr.
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