Liquidation capital gains are taxed on each distribution date, not only on final liquidation, under section 46(2).

Section 46(2) of the Income-tax Act treats money or assets received by a shareholder on liquidation as the consideration for capital gains on the date each distribution is made. Chargeability attaches to each receipt when distributed, and the statute does not defer tax until the final liquidation distribution. Where distributions were received before the 1961 Act introduced such a levy, they could not be taxed as capital gains. Once the shareholder's cost of acquisition is recovered, any later excess is taxed as capital gain when received.

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Issues: Whether, on liquidation of a company, capital gains under section 46(2) of the Income-tax Act, 1961, are chargeable only when the final distribution is made or on each date when money is received by a shareholder.

Analysis: Section 46(2) charges a shareholder to tax on money or assets received on the date of distribution, and deems the sum so received to be the full value of consideration for computing capital gains. The liability therefore attaches to each receipt on the date it is distributed, and the statute does not postpone chargeability until the final dividend or final liquidation distribution. Amounts received in 1949 and 1953 could not be taxed as capital gains because, on those dates, the Indian Income-tax Act, 1922 did not provide for such a levy. Once the cost of acquisition is recouped by receipt of distribution, any excess received thereafter is capital gain when received.

Conclusion: The charge under section 46(2) arises on the date of each distribution and not only on the final distribution; the Revenue's contention was rejected and the assessment order quashed.

Ratio Decidendi: Under section 46(2) of the Income-tax Act, 1961, capital gains on liquidation are taxable with reference to each distribution date, and chargeability cannot be postponed until final liquidation.

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