Income-tax---

---Capital gain---Company---Liquidation---Distribution of assets---Assets received by shareholder---Value in excess of amount taxable as dividend-- Assessable to capital gain--- Indian Income Tax Act, 1961 Ss. 2(22)(c), 46(2).

Even though the amounts or assets received by a shareholder of a company in the liquidation proceedings of the company are not on account of transfer of property, Parliament has chosen to treat such receipts, under section 46(2) of the Income Tax Act, 1961, as capital gains subject to a specified deduction, viz. the amount assessed as dividend within the meaning of section 2(22)(c). In view of the specific provision in section 46(2); the value of the assets received by the shareholder in the liquidation proceedings of the company can rightly and properly be brought to capital gain tax.

C.I.T. v. Vijoy Kumar Budhia (1975) I.T.R. 380 affirmed on this point.

C:I.T. v. R.M. Amin (1977) 106 I.T.R. 368 (SC) ref.

None appeared for Appellant (in C. A. No. 1411 of 1975).

S. N. Misra, Senior Advocate (Munish Misra and S.S. Jauhar, Advocates, with him) for Appellant (in C.A. No.2042 of 1984).

B.B. Ahuja, Senior Advocate (Monoj Arorar, D.S. Mehra and Ms. A. Subhashini, Advocate with him) for Respondent (in both the appeals).

ORDER

Civil Appeal No.2042 of 1984:

This appeal is preferred against the judgment of Patna High Court answering the question referred to it in favour of the Revenue and against the assessee. The reference was made at the instance of Revenue. The question as stated by the Tribunal read as follows:

"Whether, on the facts and in the circumstances of the case, the amount of Rs.34,040 was assessable in the hands of the assessee under the head 'Capital gain?'

With a view to bringing out the issue in controversy more clearly, the High Court refrained the question in the following terms:

"Whether, on the facts and in the circumstances of this case, the sum of Rs.34,040 could be held to have been rightly included in the capital gain of the assessee under section 46 read with sections 48 and 49 of the Income Tax Act, 1961?"

The assessee was a shareholder in a private limited company. The company went into liquidation. In those proceedings, the assessee received certain assets towards the shares held by him. In the assessment proceedings relating to the relevant years, the question arose whether the assets so received by the assessee can be treated as his income by way of capital gains. The Income-tax Officer placed his own value on the said assets and levied the tax. The assessee's contention was that inasmuch as there was no transfer of property and since the income did not arise from any such transfer, no capital gains could be said to have arisen. This plea was negatived by the Income Tax Officer. When the matter ultimately reached the High Court, it ruled against the assessee relying upon the specific provisions contained in subsection (2) of section 46. Section 46 of the Income-tax Act reads as follows:

"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 share holders 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 purpose of section 48".

It is subsection (2), which is particularly relevant in the present case. Even though the income received by the assessee in the liquidation proceedings was not on account of any transfer of property, yet Parliament has chosen to treat such receipt as capital gains, subject of course to certain specified deduction. May be, it is a case of a fiction created by the Parliament--may be not. The validity of the provision is not questioned nor it is issue herein. The subsection says that where a shareholder receives certain amounts or other assets front the company on its liquidation, he shall be charged to income-tax under the head "Capital gain" in respect of-the money so received or on the market value of the assets received as on the date of the distribution. The only deduction expressly provided by the subsection is "the amount assessed as dividend within the meaning of sub-clause (c) of clause (22) of section 2". The subsection declares further that the sum so arrived at shall be deemed to be the full value of the consideration for the purposes of section 48. (Section 48, it may be noted, specifies the permissible deductions from the full value of the consideration, which includes the cost of acquisition of the asset.)

Clause (22) in section 2 defines the expression "dividend". Sub-clause (c) thereof specifically includes` within the meaning of dividend "any distribution, made to the shareholders of a company on its liquidation, to the extent to which the distribution is attributable to the accumulate,, profit of the company immediately before its liquidation, whether capitalised or not". It is this amount which is directed to be deducted by subsection (2) of section 46.

We are, therefore, of the opinion that in the light of the specific provision contained in subsection (2) of section 46, the value of the assets received by the assessee was rightly and properly brought to capital gain tax. There are no grounds to interfere in the matter.

This is also the view taken by this Court in C.I.T. v. R.M. Amin (1977) 106I.T.R. 368.

Accordingly, this appeal fails and is dismissed.

Civil Appeal No. 1411 of 1975:

None appeared for the appellant. However, we find that the question arising herein is the same as in Civil Appeal No.2042 of 1984. This appeal too accordingly fails and is dismissed. No costs.

M.B.A./239/T.F. Appeals dismissed.