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TMI Blog2003 (1) TMI 5X X X X Extracts X X X X X X X X Extracts X X X X ..... e sisters. They were share holders in Palkulam Estates (Private) Ltd., Nagarcoil (referred to here after as the "company"). The company went into liquidation in 1964. Pursuant to a compromise decree dated December 22, 1969, in litigation between the assessees and their brother (who was also a shareholder in the company), and the company represented by the liquidator, the assets of the company which included agricultural lands were distributed to the appellants and eight others. The compromise decree stated: "This court doth further order and decree that as far as liabilities of Palkulam Estates (Private) Limited is concerned, the immovable properties be and hereby are distributed as indicated in Schedule 'A' of the compromise-Respondent No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d agricultural lands from capital gains under the general provision, it was difficult to interpret section 46(2) as including agricultural land". The action of the Income-tax Officer in charging the income of the distribution of agricultural lands as capital gains under section 46(2) of the Act was accordingly set aside. The Revenue appealed before the Tribunal. The Tribunal dismissing the Revenue's appeal held: "On a combined reading of sections 45, 46(2) and 48 it will be clear, according to our opinion, that assets mentioned in section 46(2) would mean capital assets. Inasmuch as section 47(viii) exempts transfer of agricultural lands from capital gain tax under section 45, we agree with the Commissioner of Income-tax (Appeals) in comi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore considering the correctness of the decision of the High Court the context in which section 46(2) came to be part of the Act needs to be considered. Section 12B of the Indian Income-tax Act, 1922 provided for payment of tax under capital gains "in respect of any profits or gains whatsoever from the sale, exchange, relinquishment or transfer of a capital asset effected after March 31, 1956, and such profits and gains shall be deemed to be income of the previous year in which the sale, exchange, relinquishment or transfer took place". Construing section 12B of the Indian Income-tax Act, 1922, this court in CIT v. Madurai Mills Co. Ltd. [1973] 89 ITR 45, had held that when a shareholder receives money representing his share on distributi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utorily affirmed in section 46(1) which provides: "46. (1) Notwithstanding anything contained in section 45, where the assets of a company are distributed to its shareholders on its liquidation, such distribution shall not be regarded as a transfer by the company for the purposes of section 45." In other words a distinction is drawn between a "transfer" of assets and a distribution of assets of the company on liquidation. Where there is "transfer" of assets and not a "distribution" on liquidation then having regard to section 47(viii) which provides that "Nothing contained in section 45 shall apply to the following transfers: "(viii) any transfer of agricultural land in India effected before the 1st day of March, 1970". It may have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assets of a company in liquidation by a shareholder as a taxable event. Section 46(2) is in terms an independent charging section. It also provides for a distinct method of calculation of capital gains. As said in CIT v. R.M. Amin [1977] 106 ITR 368 (SC): "The aforesaid section, 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 that sub-section, as already mentioned, it would have been difficult to levy tax on capital gains to the shareholders on distribution of assets by a company in liquidation." The section does not make any r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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