TMI Blog1997 (8) TMI 120X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing deduction for the cost of building (Rs. 70,237 and deduction under section 48 of the Act at Rs. 64,882, the Assessing Officer determined the long term capital gains at Rs. 54,881 . 3. In appeal, the CIT(Appeals) confirmed the action of the Assessing Officer. The CIT(Appeals) also held that transfer of a capital asset by way of distribution of capital asset on the dissolution of the firm is chargeable to capital gains and the fair market value of the asset on the date of such transfer has to be the basis for computation of capital gains. The assessee felt aggrieved and has preferred the present appeal before the Tribunal. 4. It is argued by the learned counsel for the assessee that even though the firm has been dissolved the partners continued to hold the building concerned as joint owners and in such a situation there was no transfer of any asset to any partner and therefore, the provisions of section 45(4) would not be applicable. The learned counsel for the assessee relied on the decision of the Jabalpur Bench of the Tribunal in the case of Asstt. CITv. Thermollics India [1997] 60 ITD 554, in support of his contentions. The learned counsel for the assessee, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lationship to the nature of the charge. In the case of CITv. R C Srinivasa Setty [1981] 128 ITR 294/5 Taxman 1, at page 299 the Hon'ble Supreme Court held as under: "..Section 45 is a charging section. For the purpose of imposing the charge, Parliament has enacted detailed provisions in order to compute the profits or gains under that head. No existing principle or provision at variance with them can be applied for determining the chargeable profits and gains. All transactions encompassed by section 45 must fall under the governance of its computation provisions...". At page 300 it was also held by their Lordships that ordinarily the operation of the charging provision cannot be effected by the construction of a particular computation provision. 6.1 In the case of CIT v. R.M. Amin [1977] 106 ITR 368, the Hon'ble Supreme Court considered the provisions of sections 2(17), 2(47); 45,46(2) and section 48. Briefly stated, the facts of this case were that the assessee held 192 shares in a private company incorporated in Uganda, hereinafter referred to as Uganda company. The matter related to assessment year 1962-63. At the relevant time the provisions of section 46(2) were applicab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lder to pay tax on capital gains which hability arises because of section 45, but was enacted with a view to prescribe the mode of calculating capital gains in the event of distribution of the assets of a company in liquidation to its shareholders. The Supreme Court was not impressed with the arguments of the Revenue. The Supreme Court further held at page 374 that 'the aforesaid section [section 46(2)], in our view, was enacted both with a view to make shareholders liable for payment of tax on capital gains as well as to prescribe the mode of calculating the capital gains to the shareholders on the distribution of assets by a company in liquidation. But for this subsection as already mentioned, it would have been difficult to levy tax on capital gains to the shareholders on distribution of assets in liquidation.' The ratio of the aforesaid decision of the Supreme Court was followed by the Hon'ble Madras High Court in the case of CITv. M.A. Alagappan [1977]108 ITR 1000. In this case their Lordships considered the provisions of section 2(47),46(l),46(2),45 and 2(24)(vi). It was a case of a company went into voluntary liquidation, namely Ajax Products Ltd., in October 1954. The asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'transfer' in section 2(47); (2) section 46(l) is merely intended to make it clear that the company would not be liable for payment of any capital gains; (3) that section 46(2) provides that the amount received by the shareholder shall be chargeable to income-tax under the head ,capital gains' and the amount to the extent it is not liable to be treated as dividend shall be deemed to be the full value of the consideration for the purposes of section 48 and therefore, is an independent provision making the amounts received chargeable to income-tax under the head 'capital gains' though it did not arise from transfer of a capital asset. (4) Accordingly, even if capital gains of the nature falling under section 45 is alone included in the definition of income in section 2(24)(vi) and not any other kind of capital gains, section 46(2) makes the amount received by a shareholder on the liquidation of a company chargeable to income-tax under the head 'capital gains' and hence it will have to be included in the total income of the assessee. Therefore, the amount of Rs. 8331 received by the assessee is includible in the chargeable income of the assessee under the head 'capital gains'.' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g proposition of law had been laid down in the above mentioned decisions of the Supreme Court as well as the three decisions of the jurisdictional High Court: (1) A transaction may not amount to a 'transfer' within the definition of the word 'transfer' in section 2(47) of the Act, but still the amount received by a shareholder on the liquidation of the company as a result of distribution of assets is chargeable to tax under the head 'capital gains'. (2) Section 46(2) is an independent section making the amount received chargeable to Income-tax under the head 'capital gains' though it does not arise from the transfer of a capital asset. (3) No existing principle or provision at variance with charging section can be applied for determining the chargeable profits and gains B.C. Srinivasa Setty case . Operation of the charging provision cannot be effected by the construction of a particular computation provision. 8. Now, if we look at the provisions of section 45(4) it is clear from the expression 'profits and gains arising from the transfer of a capital asset by way of distribution of capital asset on the dissolution of the firm .... or otherwise, shall be chargeable to tax as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within the meaning of section 2(47), but in view of the specific provisions of section 46(2) of-the Act, the jurisdictional High Court in the aforesaid cases of M.A. Alagappan , C T Oppilal Achi and MA. Chidambaram has held that the amount received by the shareholder on the liquidation of a company is chargeable to Income-6--tax under the head 'capital gains'. We, therefore, need not look into the definition of the term 'transfer' in section 2(47) of the Act, which is a restrictive clause for the purpose of charging tax on capital gains arising from the transfer of capital asset by way of distribution of capital asset on the dissolution of the firm and the ratio laid down by the Hon'ble Supreme Court in the cases of RC Srinivasa Setty and R.M. Amin and by the jurisdictional High Court in the aforesaid three decisions, are clearly applicable to the facts of the present assessee's case. 10. In the case of Thermoflics India (szipra) decided by the Jabalpur Bench of the Tribunal and relied upon by the assessee's counsel, the aforesaid judgments of the Hon'ble Supreme Court and the Madras High Court were not considered and therefore, the real nature of the provisions of section 45(4) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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