TMI Blog1976 (11) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 July 10, 1961. The liquidators sold the assets of the company in due course and the liquidators' account was finally drawn up on July 31, 1961. As per this account, the assessee became entitled to receive Sh. 4,68,489 at the rate of Sh. 2,440.0493 per share as return of capital. The above amount was equivalent to Rs. 3,12,326. There was thus an excess of Rs. 1,84,326. This amount was received by the assessee during the accounting year. The Income-tax Officer treated the amount of Rs. 1,84, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gain, if chargeable, would work out to be Rs. 1,23,590. The Tribunal then went into the question as to whether there was transfer of capital assets and came to the conclusion that there was no such transfer within the meaning of section 2(47) of the Act of 1961. The contention of the revenue that there had been extinguishment of the rights of the assessee was repelled. In the result, the appeal of the assessee was accepted. On the application made by the appellant, the question reproduced above was then referred to the High Court. The High Court, in answering the question referred to it in the negative, held that the transfer contemplated by section 45 should be one as a result of which consideration is received by the assessee or accrues to him. When a shareholder receives moneys representing his share on distribution of the net assets of the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nguishment 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 effected in the previous year shall, save as otherwise provided in sections 53 and 54, be chargeable to income-tax under the head 'Capital gains', and shall be deemed to be the income of the previous year in which the transfer took place. " Section 46 which pertains to capital gains on distribution of assets by companies in liquidation reads as under : " 46. Capital gains on distribution of assets by companies in liquidation.--(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. (2) 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 assets on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holder receives money representing his share on distribution of the net assets of the company in liquidation, he receives that money in satisfaction of the right which belonged to him by virtue of his holding the shares and not by operation of any transaction which amounts to sale, exchange, relinquishment or transfer. " The above observations, though made in the context of section 12B of the Act of 1922 which related 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 assets on the date of d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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