Capital Gain

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This case study explores the capital gains tax implications for family members receiving property upon the liquidation of their company. While the company itself avoids capital gains tax on asset distribution during liquidation, shareholders are liable for capital gains tax on the value of assets received. The valuation method for assets, particularly for indexation purposes, is also discussed, suggesting the market value of the property at the relevant date should be used.

Vaibhav

Vaibhav (Querist)

19 December 2020 Please solve this case study.
A property was purchased by family members in a company in 1992 for 5 lacs. The company went into liquidation in 2020 and the members of the same family get a share of the property as per there shareholding.
SDV in 2020 6 crores. What will be the taxation in the hands of shareholders. Will it be exempt as the shareholders are of the same family who was at the time of purchase?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

19 December 2020 As per section 46(1), where the assets of a company are distributed to its shareholder on its liquidation, such distribution shall not be regarded as a transfer by the company. Therefore, there will be no capital gain to the company. However, where a shareholder on the liquidation of a company, receives any money or other asset from the company in lieu of the shares held by him, such a shareholder shall be chargeable to income-tax under the head 'Capital gains' in respect of the money and the asset so received. In this case, the consideration price for capital gain purposes shall be money received and/or the market value of the other assets on the date of distribution.

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Vaibhav

Vaibhav (Querist)

19 December 2020 Mr R SEETHARAMAN can you guide me with one more thing that what will be the valuation method for FMV of shares as on 2001 for indexation? will the market value of the property be taken for valuation as on 2001 under section 11UA?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)

20 December 2020 Take market value of the property.

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