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TMI Blog1976 (11) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... case, there was a transfer of a capital asset within the meaning of section 45 read with section 2(47) of the Income-tax Act, 1961 ? " The matter relates to the assessment year 1962-63, for which the accounting previous year was the calendar year 1961. The assessee, who is an individual, held 192 shares of Kawelengoji Ginneries Ltd., Kampala, a private limited company incorporated in Uganda (hereinafter referred to as " the Uganda company "). Those shares were acquired by the assessee some time before January 1, 1954, and he paid Sh. 1,000 for each share. The amount thus paid by the assessee for the 192 shares was Sh. 1,92,000, equivalent to Rs. 1,28,000. The said company went into voluntary liquidation as per special resolution dated Ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relinquishment of the asset or the extinguishment of any rights therein ". The Appellate Assistant Commissioner held that for the relinquishment of an asset, the asset must continue to be in existence. Applying that criterion, the Appellate Assistant Commissioner held that there was no relinquishment of the asset. There was, however, in the opinion of the Appellate Assistant Commissioner, extinguishment of the rights in the capital assets as represented by the shares and, therefore, the amount was liable to be taxed to capital gains tax. The appeal of the assessee was accordingly dismissed. On second appeal, the assessee, apart from contesting the taxability of the amount of Rs. 1,84,326 as capital gains, raised two other contentions. One ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he company in liquidation, he, in the opinion of the High Court, receives such moneys in satisfaction of the right which belongs to him by virtue of his holding the share and not by way of consideration for the extinguishment of his right in the share. The High Court accordingly concluded that, when a shareholder receives his share on final distribution of the assets of the company in liquidation, there is no transfer of capital assets by him which would attract the charge of capital gains tax. The judgment of the High Court is reported in [1971] 82 ITR 194 (Guj) (Commissioner of Income-tax v. R. M. Amin). Before proceeding further, we may mention that tax on capital gains was charged for the first time by the Income-tax and Excess Profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of the Board to be a company for the purposes of this Act. " The learned counsel for the parties are agreed that the Uganda company was not a company within the meaning of the word " company " as given in the above provision. Transfer in relation to a capital asset has been defined in clause (47) of section 2 of the Act, and the definition reads as under : " (47) 'transfer', in relation to a capital asset, includes the sale, exchange or relinquishment of the asset or the extinguishment of any rights therein or the compulsory acquisition thereof under any law. " Section 45 deals with the levy of tax on capital gains and reads as under : " 45. Capital gains.--Any profits or gains arising from the transfer of a capital asset effecte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im in excess of the cost of acquisition of those shares constituted profits or gains. The question with which we are concerned is whether those profits or gains arose from a transfer of the capital assets. The argument of Mr. Desai, learned counsel for the appellant, is that when the assessee received the sum of Sh. 4,68,489 in lieu of the 192 shares held by him in the Uganda company, he received that amount as a result of transfer. The word " transfer ", in relation to a capital asset, according to the learned counsel, includes extinguishment of any rights therein. The words " extinguishment of any rights therein ", it is submitted, would cover the case of the assessee when he received the amount mentioned above on account of the shares he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to capital gains in respect of profits or gains arising from sale, exchange, relinquishment or transfer of capital assets, in our opinion, would also cover the case of extinguishment of any rights in capital assets. The matter can also be looked at from another angle. In the case of Indian companies and the other companies falling within the definition of company, as given in section 2(17) of the Act of 1961, the legislature has made express provision in sub-section (2) of section 46 of the Act that where a shareholder on the liquidation of a company receives any money or other assets from the company, he shall be chargeable to income-tax under the head " Capital gains " in respect of the money so received or the market value of the other ..... X X X X Extracts X X X X X X X X Extracts X X X X
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