service
44 Points
Joined October 2013
Dear Shefali,
In my opinion diff of both section is as follows:
Suppose A ltd distributes asset on liquidation to MR. X.
Now there are two things happening.
There is a transfer of capital asset by co and there is an income to the shareholder receiving asset. Now sec 45 says that whenever any transfer of capital asset takes place then capital gain shall be attracted. So according to this sec co should pay CG tax on asset distribution. Now 46(1) is inserted to exempt the co from sec 45 in liquidation cases. In sec 46(1) the word “notwithstanding any thing contained in sec 45” is mentioned which means sec 46(1) is overriding sec 45 and thus A ltd shall not have to pay CG tax on asset distribution on liquidation. On the other hand it does not mean A ltd is saved from the clutch of income tax. It has to pay tax u/s 2(22)(C ) known as deemed dividend.
Now sec 46(2) applicability: it is not applicable on co. it is applicable on the shareholder only who receives asset from co on liquidation. In our example Mr. X. You cannot tax it as IOS u/s 56 because sec 46(2) is a specific section for these cases. Since 46(2) says that the CG will be charged in the hands of shareholder you need the amount of consideration u/s 48 which is simply the market value of asset less deemed dividend u/s 2(22)(C ).
