TMI Blog1974 (8) TMI 41X X X X Extracts X X X X X X X X Extracts X X X X ..... see received 83/510ths share in the said property of the company. The value of his share, therefore, came to Rs. 24,900. The Income-tax Officer found that the value of the property assessed by the liquidator was highly inadequate. He, accordingly, assessed the market value of the property of the company at Rs. 4,50,000. Thus, the value of the share of the assessee in the property of the company distributed to, and received by, him was determined at Rs. 73,235. The assessee's stand that he was not chargeable for income from any capital gain on account of his receipt of the company's property was not accepted by the Income-tax Officer. He took the value of the company's property at Rs. 1,53,000 as prevailing on January 1, 1954. Deducting the said value from the market value of Rs. 4,50,000, the capital gain in the hands of the assessee was determined at Rs. 48,335, i.e., 83/510ths share in the sum of Rs. 2,97,000. A copy of the order of the Income-tax Officer is annexure " A " to the statement of the case and forms part of it. The assessee preferred an appeal before the Appellate Assistant Commissioner of Income-tax. He also rejected the stand of the assessee that in a matter l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee on the distribution of the net assets of M/s. Ganpati Properties (P.) Ltd. by the liquidator as capital gains arising during the year within the meaning of section 45 of the Income-tax Act, 1961 ? (2) Whether, on the facts and in the circumstances of this case, the Tribunal has applied correctly to the facts of this case the principle of law laid down by the Gujarat High Court in the case of Commmissioner of Income-tax v. R. M. Amin ? " The Tribunal in paragraph 6 of the statement of the case has stated that questions of law referred by the Additional Commissioner of Income. tax do not arise but the questions of law which emerge out of the finding of the Tribunal are : (1) Whether, on the facts and circumstances of the case, the amount received by the assessee as a shareholder on liquidation of the company was a transfer of capital asset within the meaning of section 2(47) of the Income- tax Act, 1961 ? (2) Whether, on the facts and circumstances of the case, Rs. 48,335 was rightly included as capital gains in the total income of the assessee? " In between the two questions, the Tribunal has stated : " If the answer to the above question is in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ets received by the assessee to the tune of Rs. 48,335 to the total income of the assessee. When the assessee went up in appeal before the Appellate Assistant Commissioner, it would appear from his order that he brushed aside the argument made on behalf of the assessee that capital gains in his hands could not be taxed under section 45 of the Act, by stating that the clear provisions contained in section 46 of the Act would be applicable and the point did not need any elaboration. But then, he held that the Income-tax Officer had no power under section 52 of the Act to enhance and determine the fair market value of the property in this case as one of the conditions for exercise of that power was surely not fulfilled, namely, avoidance or reduction of the liability of the assessee under section 45. Taking the two values at par, therefore, he came to the conclusion that there was no capital gain in the hands of the assessee and hence the inclusion of the amount in his assessment was erroneous. The department went up in appeal before the Tribunal. While recapitulating in paragraph 3 of its order as to what was done by the Appellate Assistant Commissioner it referred to his view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s pointed out by the Supreme Court in Commissioner of Income-tax v. Scindia Steam Navigation Co. Ltd. at page 611 : " When a question of law is raised before the Tribunal but the Tribunal fails to deal with it, it must be deemed to have been dealt with by it, and is, therefore, one arising out of its order. " On behalf of the department, therefore, a question of law ought to have been pointedly raised as to whether the liability of the assessee in this case for tax on capital gain could be determined under section 46(2) of the Act and so the Income-tax Officer had power to determine the market value under the said provision of law. When in appeal it was conceded that section 52 was not attracted, by necessary implication it must be deemed to have been conceded---and, I may add---conceded rightly, that the assessee could not be held liable in this case under section 45 of the Act. Yet it is strange to find that the first question of law asked to be referred on behalf of the department was with reference to section 45 and no question of law was framed in specific terms referring to section 46 at all. The second question framed was whether the principle of law enunciated by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribution of the assets of the companies in liquidation does not amount to a transaction of sale, exchange, relinquishment or transfer so as to attract section 12B of the Act. " For the purposes of the point at issue, section 12B of the Indian Income-tax Act, 1922, corresponds to section 45 of the Act. The decision in the Gujarat case, in terms, was given with reference to section 45. It is, therefore, clear that the first question referred to this court has got to be answered in the negative, in favour of the assessee and against the revenue. I accordingly hold that, on the facts and in the circumstances of this case, the amount received by the assessee as a shareholder on liquidation of the company was not a transfer of capital asset within the meaning of section 2(47) of the Act and hence he was not chargeable to income-tax on the capital gain under section 45 of the Act. I now proceed to discuss the second question by pointing out the relevant provisions of the Act. I ought to have stated that the assessment year in question was 1964-65. Section 45 of the Act, as originally enacted, became sub-section (1) of section 45 by Act 5 of 1964 which came into force with effect fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribes the mode of computation of the income chargeable under the head "Capital gains". The method of computation is to deduct from the full value of the consideration received or accruing as a result of the transfer of the capital assets the amount, namely, the cost of acquisition of the capital assets and the cost of any improvement thereof. In this case, therefore, the computation of income chargeable under the head " Capital gains " under section 48 of the Act undoubtedly had to be done by the Income-tax Officer. It was inherent in the exercise of that power to determine the full value of the consideration as provided in section 46(2). The Income-tax Officer was, therefore, enjoined a duty to determine the market value of the assets received by the shareholder on liquidation of the company on the date of distribution. A contributory receiving assets from a company not necessarily receives the assets of the value determined by the liquidator. Where such a value has been determined by the liquidator, it is the duty of the Income-tax Officer and within his power to determine the market value of the assets received by the shareholder and such a market value has to be determined as p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ead " Capital gains " in respect of the asset which he received from the company under section 46 vis-a-vis any further transaction which he may enter into, the fair market value of the asset on the day of distribution will be the cost of acquisition of the capital asset under clause (iii). I shall make myself clear by making a supposition. Supposing to-day the assessee sells the assets received by him from the company for Rs. 1,00,000, then he will be assessed to income-tax on capital gain on a sum of Rs. 26,765 only, which is the difference between the figure of Rs. 1,00,000 and Rs. 73,235---the fair market value of the asset on the date of distribution. It would thus be seen that in this case for the purposes of section 46(2) the full value of the asset on the date of distribution was Rs. 73,235. From this had to be deducted the value of that asset on January 1, 1954. The assessee's share came to Rs. 24,900. Under section 48, deducting the same from the full value, the income chargeable under the head " Capital gains " will be Rs. 48,335, the amount determined by the Income-tax Officer. It is true no doubt that neither the Appellate Assistant Commissioner nor the Tribunal wen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erable to the liability of the assessee under section 46(2) of the Act. The principle laid down by the Gujarat High Court was not challenged in the said question ; only its application was challenged. Section 46(2), as would appear from the judgment of P. N. Bhagwati C. J., could not be applied in that case as the company was not a company to which the said provisions of law could apply. Argument on behalf of the department with reference to section 45 was repelled. When the Additional Commissioner said that the principle of the Gujarat High Court had not been correctly applied to the facts and circumstances of the instant case, surely he meant to convey that to the facts of this case was applicable the provisions of section 46(2) of the Act. When the Tribunal referred the second question in that broad and general term, it did invite this court to record its opinion whether, on the facts and in the circumstances of this case, the sum of Rs. 48,335 was rightly included as capital gain in the total income of the assessee. If the first question referred by the Tribunal were to be answered in the affirmative, the answer to the second question would have followed as, a matter of corolla ..... X X X X Extracts X X X X X X X X Extracts X X X X
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