Capital gain

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swasti (Querist)

23 February 2014 A private limited company is being liquidated. It is understood that the shareholders would get the proceeds after discharging liabilities to the creditors. Whether the amount which the shareholder gets after liquidation of company chargeable to income tax in his hands as capital gain tax u/s 46 of the I.T.Act 1961? Also if the company was incorporated long back, what would be the rate of capital gain tax?

CA. Brijesh Baranwal

CA. Brijesh Baranwal (Expert)

24 February 2014 1. As per Section 46(1), capital gain is not chargeable in the hands of the company if some conditions are satisfied,
2.For the purposes of Section 46(2), there will be no capital gain tax on amount treated as dividend u/s 2(22)(c)to the extent of accumulated profit of the company.

swasti

swasti (Querist)

28 February 2014 But Sir, according to Sec 46(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 assets on the date of distribution as reduced by the amount assessed as dividend within the meaning of Sec 2(22)(c)."

Suppose a shareholder receives cash on liquidation of the company, what would be the tax consequences?

Please clarify, it would be useful. Thanks

CA. Brijesh Baranwal

CA. Brijesh Baranwal (Expert)

28 February 2014 Capital gain shall be determined as follows;

1. Deduct amount treated as dividend from total amount received,
2.From the consideration as above in point no. 1, deduct cost/indexed cost of acquisition, expenditure on sale etc. to find out capital gain.

swasti

swasti (Querist)

28 February 2014 Brijesh ji, Thanks. Although you have changed your earlier view yet it had been helpful. According to your new suggestion, the capital gains would be chargeable on the money/assets received as reduced by the dividend. The dividend such calculated would also be taxable if the company is not paying DDT. Am I right in this?

swasti

swasti (Querist)