COMMISSIONER OF INCOME TAX, MADRAS versus M/S. MADURAI MILLS CO. LIMITED

Citation: [1973] 3 S.C.R. 662 · Decided: 09-03-1973 · Supreme Court of India · Bench: K.S. HEGDE · Disposal: Dismissed

Cited by 1 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

662 
COMMISSIONER OF INCOME TAX, MADRAS 
v. 
M/S. MADURAI MILLS CO. LIMITED 
March 9, 1973 
[K. S. HEGDE, P. JAGANMOHAN REDDY AND H. R, KHANNA, JJ.] 
Income-tax Act, 1922, s. 12B-Capital Gains-Voluntary liquidation 
of private limited company-Distribution of assets 
to shareholder.--
Surplus received by shareholders whether attracts tax on capital gains--
Distribution of assets whether amounts to sale, exchange relinquishmenti 
or transfer within meaning of s. 12B. 
Interpretation of statutes-Proviso which existed 
in 
original 
law 
dropped in amended law-Inference to be drawn, 
Three private limited companies in which the assessee held ahatel· 
went into voluntary liquidation in December 1959 
In the course ot 
the ·liquidation proceedings the liquidators made dislribution in the year 
of account relevant to the aaaeasment year 1961-62, and the assesaee 
company got cash or assets in lieu of the amounts due in respect of 
the three compariies. The Revenue took the view that by reason 
of 
the distribution of assets of the three private companies under liquida-
tiol> by the liquidators there had been a capital gain which was assessed 
by the Income-tax Officer at Ra. 95,944/-. The Appellate Assisl$t 
Commissioner up\leld the order of the Income-tax 
Officer. 
He 
took 
the view that the surplus arose out of the .exchange of aharea held by 
the assessee company in the three companies and therefore the surplus 
ought to be brought to tax. In further appeal the Tribunal held that 
there was no exchange or transfer of shares and assets in question but 
the transaction could be 
viewed 
as 
a 
relinquishment. The 
Higb 
Court held, in reference, that where a liquid.tor distributes the assets 
of the company which ha8 gone into voluntary liquidatiop 
he 
ia 
performing a legal function and there is no element of sale, transfer, 
exchange or relinquishment involved in such distribution. The Revenue 
appealed to this Court, 
Dismissing the appeal, 
HELD : (i) The distribution of the assets of the companies in 
liquidation does not amount to a transaction of sale, exchange, reJiD .. 
quishment or transfer So as to attract section 12B of the Act. 
When 
a shareholder reoeives money repr...,nting 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 
holdin.e the shares and not by operation of_ GDY 
transaction 
which 
amounts to sale, exchange, relinquishment or transfer. In the ckcums-
tances it was difficult to hold that the assessee company was liable to 
pay tax on capital gains as contemplated by section l 2B of tho Act 
in respect of the amount of Rs. 95,944/- [6670) 
(ii) If the language of sub-section (!) 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 qr exchange 
the 
said" trllllSaction of distribution of assets would not chan_ge its character 
and acquire the attributes of sale, transfer or exchange because of the 
omission of a clarification in the first proviso to aub..ection ( l) of 
section 12B of the Act, even though such a clariJlcation was there In 
A 
B 
c 
D 
E 
F 
G 
H 
• 
• 
A 
B 
c 
C.I.T . . v. MADURAI MILLS (Khanna, ].) 
663 
the !hi.rd provis<> of the s~ction inserted by the earlier Act (Act 22 of 
1947). It is· well settled that considerations 'stemming from legislative 
history must pot be 'allowed to override the pMn words of a statute. 
A proviso cannot be construed as enlarging the scopz of an enactment 
\Vhen it can be fairly and p.r:operly construed with'out attributiniz to 
it !hat effect. Further if the language of the enacting part of the statute 
is 
pla~ <ind unamb'iguous and does not contain the provisions which 
are said to occur in it~ one cannot derive those provisions by implica-
tion from a proviso. [6690] 
Commissioner. of Income-tax U.P. v. Bankey Lal Vaidya . [197_11 
79 I. T. R. 594 and Commissioner of Income-Tax v. Dewas Cine Cor• 
poration [1968] 68 I.T.R. 240, applied. 
· 
Commissioner of Income-tax ·v. Associated Industrial 
Developnient 
Co. P. Ltd. [1969] 73 I.T.R. 50 and Commissioner of Income 
Tax 
v. R. M. Amin, [1971] 82 1.T.R. 194, approved. · 
Anderson v. Commissioner of Income Tex. [1960] 39 I.T.R. 123, 
distinguished. 
' 
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1394 of 
1970. 
'\ 
,. D 
Appeal by certificate from the judgment and order dat

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