TaxTMI 
TaxTMI 
1981 (10) TMI 5
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....C.T.M. TIRUPPANI TRUST' for the assessment year 1970-71 ? The assessee, a private limited company, held 80 fully paid-up shares in the United India Life Insurance Company Ltd. That company went into liquidation after the life insurance business was nationalised. The liquidator distributed certain amounts to all the shareholders in the course of the winding-up. The assessee received Rs. 40,000 on August 5, 1958, Rs. 32,000 on February 17, 1959, and Rs. 15,168 on September 16, 1969. We are concerned here with the last amount. In the assessment for the assessment year 1970-71, the ITO brought to tax the whole of Rs. 15,168 received by the assessee as capital gains under s. 46(2) of the I.T. Act. The assessee filed an appeal before the AAC. Before the AAC the contention of the assessee was that the said sum of Rs. 15,168 was not at all taxable. The AAC held that s. 46(2) of the Act clearly applied, and, therefore, rejected the assessee's contention. The assessee appealed to the Tribunal and before the Tribunal an additional ground was taken, namely, that in computing the capital gains, Rs. 9,379, being the cost of acquisition of the said shares, should be deducted. The Tribunal, fol....
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.... the Indian I.T. Act, 1922, that the distribution of the assets of a company in liquidation did not amount to a transaction of sale, exchange, relinquishment or transfer so as to attract s. 12B and that no capital gains arose to the shareholders of the company therefrom. Only because of this statutory position the first two amounts received in 1958 and 1959 were not taxed. This lacuna was filled up by enacting s. 46(2). As it has now been ruled by the Supreme Court that s. 46(2) is a charging provision, we do not think it necessary to go into the nature of the charge any further. The point that remains to be considered is whether the assessee is eligible for the deduction of the cost of acquisition of the assets, namely, the shares, which gave rise to the right to obtain the amounts distributed by the liquidator. Section 46 runs as follows : (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 co....
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....sfer of a capital asset; and (ii) the cost of acquisition of the capital asset and the cost of any improvement thereto. As s. 46(1) itself has provided that the distribution by the liquidator should not be regarded as a transfer by the company for the purposes of s. 45, the question of any expenditure incurred wholly and exclusively in connection with the transfer would not come in for consideration. Therefore, in the case of the special category of capital gains taxed under s. 46(2) the only other deduction that is permissible is the cost of acquisition of the capital asset and the cost of any improvement thereto. In order to see what the cost of acquisition or the cost of improvements is, it may be necessary to go into the other definition provisions in the same group of sections. For our present purpose it is unnecessary to go into those provisions. It is enough to mention that s. 48 furnishes the method of computation of capital gains in the case of receipts from the liquidator also. We have already extracted the relevant passage from the judgment of the Supreme Court in CIT v. R. M. Amin [1977] 106 ITR 368 at 374. The Supreme Court has, if we may say so with respect, quite su....
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....t of the provisions of ss. 24, 36 and 38 and we do not consider that there can be any analogy between the provisions considered therein and those under consideration. That case shows that under certain provisions deduction may be available more than once for the same amount. We do not find s. 48 allowing such a double or multiple deduction. If the cost of acquisition of the capital asset is not to be taken into account, then the position will be curious. The assessee is entitled to the distribution only by virtue of his shareholding. What he receives is proportionate to his shareholding. Therefore, it is the share which gives rise to the right to obtain money from the liquidator. If the cost of acquisition of the share is ignored, then it would mean that the assessee is receiving an amount not with reference to the shares but with reference to some other intangible right. In the case of assets for which there is no cost of acquisition, it has been held by this court in CIT. v. Rathnam Nadar [1969] 71 ITR 433, which has been approved by the Supreme Court in CIT v. B. C. Srinivasa Setty, [1981] 128 ITR 294, that there could be no levy of capital gains. Therefore, the case of the Rev....