1976 (11) TMI 3

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....eferred to as " the Uganda company "). Those shares were acquired by the assessee some time before January 1, 1954, and he paid Sh. 1,000 for each share. The amount thus paid by the assessee for the 192 shares was Sh. 1,92,000, equivalent to Rs. 1,28,000. The said company went into voluntary liquidation as per special resolution dated July 10, 1961. The liquidators sold the assets of the company in due course and the liquidators' account was finally drawn up on July 31, 1961. As per this account, the assessee became entitled to receive Sh. 4,68,489 at the rate of Sh. 2,440.0493 per share as return of capital. The above amount was equivalent to Rs. 3,12,326. There was thus an excess of Rs. 1,84,326. This amount was received by the assessee during the accounting year. The Income-tax Officer treated the amount of Rs. 1,84,326 as capital gains liable to tax within the meaning of section 45 of the Act of 1961. It was pointed out by him that the Uganda company was not a company within the meaning of section 2(17) of the Act of 1961 and the shareholders thereof could not be said to be entitled to the benefit provided under section 46(2) of the Act of 1961. Accordingly, the entire amoun....

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....elled. In the result, the appeal of the assessee was accepted. On the application made by the appellant, the question reproduced above was then referred to the High Court. The High Court, in answering the question referred to it in the negative, held that the transfer contemplated by section 45 should be one as a result of which consideration is received by the assessee or accrues to him. When a shareholder receives moneys representing his share on distribution of the net assets of the company in liquidation, he, in the opinion of the High Court, receives such moneys in satisfaction of the right which belongs to him by virtue of his holding the share and not by way of consideration for the extinguishment of his right in the share. The High Court accordingly concluded that, when a shareholder receives his share on final distribution of the assets of the company in liquidation, there is no transfer of capital assets by him which would attract the charge of capital gains tax. The judgment of the High Court is reported in [1971] 82 ITR 194 (Guj) (Commissioner of Income-tax v. R. M. Amin). Before proceeding further, we may mention that tax on capital gains was charged for the firs....

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....me-tax under the head 'Capital gains', and shall be deemed to be the income of the previous year in which the transfer took place. " Section 46 which pertains to capital gains on distribution of assets by companies in liquidation reads as under : " 46. Capital gains on distribution of assets by companies in liquidation.--(1) Notwithstanding anything contained in section 45, where the assets of a company are distributed to its shareholders on its liquidation, such distribution shall not be regarded as a transfer by the company for the purposes of section 45. (2) Where a shareholder on the liquidation of a company receives any money or other assets from the company, he shall be chargeable to income-tax under the head 'Capital gains', in respect of the money so received or the market value of the other assets on the date of distribution, as reduced by the amount assessed as dividend within the meaning of sub-clause (c) of clause (22) of section 2 and the sum so arrived at shall be deemed to be the full value of the consideration for the purposes of section 48. " Section 47 specifies some of the transactions which shall not be regarded as transfers. Section 48 prescribes th....

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.... context of section 12B of the Act of 1922 which related to capital gains in respect of profits or gains arising from sale, exchange, relinquishment or transfer of capital assets, in our opinion, would also cover the case of extinguishment of any rights in capital assets. The matter can also be looked at from another angle. In the case of Indian companies and the other companies falling within the definition of company, as given in section 2(17) of the Act of 1961, the legislature has made express provision in sub-section (2) of section 46 of the Act that where a shareholder on the liquidation of a company receives any money or other assets from the company, he shall be chargeable to income-tax under the head " Capital gains " in respect of the money so received or the market value of the other assets on the date of distribution as reduced by certain amounts which need not be specified. But for this provision, it would not have been possible, in our opinion, to charge tax under the head " Capital gains " on the money or other assets of a company received by its shareholder on its liquidation. The provisions of sub-section (2) of section 46, as already mentioned, apply only to th....