COMMISSIONER OF INCOME TAX Vs. J NARAYANA MURTHY

JUDGEMENT

(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 :

(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. S. Ravi, advocate, to assist the court in the matter.