Civil Appeal No. 2042 of 1984 :
This appeal is preferred against the judgment of the 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 the 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 gains' ?"
With a view to bringing out the issue in controversy more
clearly, the High Court reframed 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 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. "
It is sub-section (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
Parliament-may be not. The validity of the provision is not questioned nor is it
in issue herein. The sub-section says that where a shareholder receives certain
amounts or other assets from the company on its liquidation, he shall be charged
to income-tax under the head "Capital gains" 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 sub-section is
"the amount assessed as dividend within the meaning of sub-clause (c) of
clause (22) of section 2". The sub-section 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 accumulated profits of the company immediately before its liquidation,
whether capitalised or not". It is this amount which is directed to be
deducted by sub-section (2) of section 46.
We are, therefore, of the opinion that in the light of the
specific provision contained in sub-section (2) of section 46, the value of the
assets received by the assessee was rightly and properly brought to capital
gains tax. There are no grounds to interfere in the matter.
This is also the view taken by this court in CIT v. R. M.
Amin [1977] 106 ITR 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.
Appeals dismissed
