Part -1- Learn Capital Gain in easy way -Must read by all Students

Capital gain on distribution of Assets by companies in liquidation (under sec. 46)

   a)      Tax treatment in the hands of company  - Sec 46(1)

Conditions :-

1. Assets are distributed by a company
2. Assets are distributed at the time of liquidation
3. Assets are distributed to shareholders

 Note :-  

1.  If all the condition are satisfied then, It is not treated as “transfer”, therefore capital gain in this case is not chargable to tax in the hand of company.
2.  As by virtue of section 46(1) distribution of capital asset in kind to shareholders at the time of liquidation is not treated as “transfer”.
3. Where, however, the liquidator sells the assets and distribute the cash so realized to the shareholders, then sec.46(1) shall not apply. The company shall be liable to tax on the capital gain arising from sale of the assets – Sri Kannan Rice Mills Ltd. v. CIT[1954]

b)  Tax treatment in the hands of shareholders in the year of liquidation -   Sec 46(2)

Step 1 -  Find out the cash/money received plus Market value of other assets received on the date of distribution

Minus

 Step 2 - Find out amount of dividend treated. U/s 2(22)(c) [to the extent of accumulated profit] i.e. (No. of shares hold by shareholder / Total No. of share of company)*100 [ Applied this percentage on total accumulated  profit to find out amount of dividend].

Step 3 (i.e. Step 1 – Step 2)  -  Balance amount is treated as Full value of consideration received on transfer of shares.

Minus

 Step 4- Cost of acquisition / index Cost of acquisition and expenditure on sale

Balance is capital gain (short / long)

If shareholders sale this Assets in subsequent years :-

                Sales Consideration                                                                 * * * *

Minus :-  Cost of acquisition / being the market value

                    on the date of liquidation of company.                                  * * * *

                 Short / long term capital gain                                           * * * *

Note :-

1. In this case STT is not applicable because of transaction not execute  in any stock exchange.
2. When a distribution is made by the liquidator, the distribution is deemed to take place in same  proportion in which share capital & accumulated profits stood in the accounts of the company immediately before the distribution. Therefore, that part of receipts which is attributable to the accumulated profit is treated as dividend – CIT v. Girdhardas & co.(p) Ltd.[1967]
3. When money is received from liquidator in installments, then the cost of acquisition has to be deducted from earlier payments and once the cost of acquisition is wiped off, any sum received thereafter will be capital gain – CIT v. Inland Agencies (P) Ltd.[1983]
4. Accumulated profit =

                                                     Amount of dividend Tax   * 100

                                                       (DDT+ST+E&HE tax)

Regard

AMIT TODKARI

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Learn Capital Gain in easy way - IMP

FOR MAY 2011

Shortcut formula to calculation of GAV

under Income from House Property

friends is sec 46 important coz our sir told us to leave it 

plzz tell

cheeers

you should not skip anything...  they can ask from sec 46(1) or 46(2) , see the compiler they had asked from this part before.

Thanks for sharing

thanks for sharing

Thanks for sharing the easy way  for c.g

Originally posted by : Arniv Sharda - stroke of wind
	friends is sec 46 important coz our sir told us to leave it  plzz tell cheeers

Yes it is also important.

here i just post the IMP topics which are difficult to understand  & try to convert it into easy way of understanding.

I hope it will help you.

Great 

Thanks for sharing

Thanks for sharing the easy way  for c.g

Thanks for sharing the easy way  for c.g

Nice way to share and it is an easy way to understand the concept, but at application angle you must adopt your sytle and techneque which may have a better impression over the examiner .....

Thanks for sharing