LAGDISH SUGAR MILLS LTD. versus THE C.I.T LUCKNOW

Citation: [1986] 3 S.C.R. 198 · Decided: 16-07-1986 · Supreme Court of India · Bench: R.S. PATHAK · Disposal: Dismissed

Judgment (excerpt)

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lAGDISH SUGAR MILLS v. C.J.T. [PATHAK,J.] 
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Income-tax Officer called upon the assessee to explain why the excess 
amount which he had received on sale of the buildings, machinery and 
plant over the difference between the original and the written down 
value should not he subjected to tax under cl. (vii) of sub-s. (2) of s. 10 
and under -s. 12B of the Indian Income-tax Act, 1922. The assessee 
contended (i) that an aucµon sale being a compulsory sale was not a sale 
within the meaning of cl. (vii) of sub-s. (2) of s. 10; and (ii) that the sale 
having been completed prior to March 31, 1956, it did not attract the 
provisions of s. 12B relating to capital gains, which became effective 
from April 1, 1956 only. The Income-tax Officer rejected the aforsaid 
contentions and computed the profits under s. 10 (2) (vii) at 
Rs.10,07 ,000 and the capital gains under s. J2B at Rs. 10, 23, 210. The 
matter ultimately went before the High Court which decided in favour 
of the Revenue. 
In the assessee's appeal to this Court it was contended (i) that cl. 
(vii) of sub-s. (2) of s. 10 of the Income-tax Act, 1922 had no application 
because an auction sale was not a voluntary sale; and (ii) that the sale 
must be regarded as having taken place on November 10, 1985 when the 
auction was held and not on July 4, 1956 when tbe sate certificate was 
issued, for the property should be deemed to have vested in the purch-
aser from the time when it was sold and not from the time when the sale 
became absolute and that being so, s. 12B did not exten;J to the sale. 
Dismissing the appeal, the Court 
HELD: 1. The sale of the properties of the assessee falls within 
the scope of cl. (vii) of sub-s. (2) of s. 10 of the Indian Income-tax Act, 
1922. it cannot be said that the element of consent essential to the 
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character of a sale was absent altogether from the transaction. The levy 
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of cane cess was imposed under a statute in respect of an activity carried 
on voluntarily by the assessee. When entering upon and carrying out 
that activity the assessee was fully conscious that he did so subject to the 
provisions of the statute, and that in the event of default of payment of 
cane-cess it was exposing itself to recovery proceedings as arrears of 
land revenue. The assessee was also aware that recovery could be af-
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fected by an auction sale of its property. The assessee thereby agreed to 
be bound by the structural framework imposed by the statute around 
the activity, and, therefore, agreed to an auction sale of its properties in 
the event of its failure to pay the cane-cess. [205C-; 204G-H; 205A-C] 
Calcutta Electric Supply Corporation Ltd. v. Commissioner o: 
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SUPREME COURT REPORTS 
l!986J 3 S.C.R. 
Income-tax, West Bengal, I 1951] 19 ITR 406; Indian Steel & Wire Pro-
ducts Ltd. v. State of Madras, 11968] 1 SCR 479; and R.E. Lachman 
Das Mohan/al & Sons v. Commissioner of Income-tax, U.P., 11964] 54 
ITR 315 referred to. 
2. The date on which the sale certificate was issued should be ·the 
date on which the sale must be regardejl as having taken place. It is only 
when the property is transferred that it can be deemed to have vested in 
the purchaser. Rule 285-M of the U.P. Zamindari Abolition and Land 
Reforms Act, is explicit in its terms. When the sale certificate itself 
operates as effecting the transfer of the property, no question arises of 
relating the transfer hack to the date of auction. (205E; 260A-B I 
The procedure incorporated in the U.P. Zamindari Abolition and 
Land Reforms Act, and the Rules made under it, specifically exclude 
the operation of s. 65 of the Code of Civil Procedure. Section 341 of that 
Act applies the Code only so far it is consistent with the· provisions of the 
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Act and not in derogation of it. [206B-C l 
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1348 
(NT) of 1974 
From the Judgment and Order dated 7.1.1974 of the Allanabad 
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High Court in l.T.R. No. 364of1971. 
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S.C. Manchanda, V.J. Francis, N.M. Popli and Ujjal Singh for 
the Appellant. 
V. Gouri Shankar and Miss A. Subhas!tini for the Respondent. 
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The Judgment of the Court was delivered by 
PATHAK, J. This appeal is directed against the judgment of the 
Allahabad High Court answering the following question in the nega-
tive: 
"l. Whether on the facts and in the circumstances of the 
case, the Tribunal was justified in holding that the pro-
visions of sections 10(2) (vii) 

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