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TMI Blog1972 (6) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany. Out of these, two payments were made out of accumulated profits and admittedly accounted for as dividend paid over to the assessee-company. Three other payments, being respectively of Rs. 53,85,400, Rs. 25,07,001 and Rs. 2,39,934, aggregating to Rs. 81,32,335 were distributed respectively on September 12, 1949, November 16, 1953, and September 18, 1961, to the assessee-company as these payments were made to the assessee-company because under the Companies Act contributories have a right to participate in the distribution of the assets of a company in liquidation. While submitting its return for the assessment year 1962-63, the assessee-company pointed out the fact of the receipt of the above last sum of Rs. 2,39,934 on the footing that in its opinion no capital gains arose on this last distribution. While assessing the assessee-company under the impugned order dated March 30, 1967, the first respondent held that for each of the above three amounts of moneys received by the assessee-company respectively on September 12, 1949, November 16, 1953, and September 18, 1961, aggregating in all to Rs. 81,32,335, the taxable event for computation of capital gains arose in the year of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and effect of section 46 of the Income-tax Act was in accordance with the findings made by the first respondent, the section was unconstitutional and contravened the petitioner's fundamental rights guaranteed under article 14 of the Constitution. The further submission was that under the scheme of section 16(2), read with other relevant sections of the Income-tax Art the relevant year for assessing and taxing capital gains made by a shareholder on receiving moneys from a company in liquidation was the "previous year" in which the moneys are received and that, therefore, there was in law no basis for the contrary findings made by the first respondent. On behalf of the respondent, Mr. Joshi contended that the assessee-company had instituted a departmental appeal and was accordingly not entitled to file this petition. By relying upon the relevant provisions in the Income-tax Act and the Companies Act he justified the findings made by the first respondent. In his submission the petitioner-company was not entitled to the relief of setting aside or quashing of the impugned order. In connection with these rival contentions it is necessary to refer to the provisions in sections 45, 46 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contracts and deeds. In respect of solvent companies only it would become possible for a liquidator, after payment of debts and discharging other liabilities, from time to time to distribute money's received by him in liquidation by sale of the different assets at different times. It is also clear that the shareholder's only assets would be his shareholding. This shareholding is never transferred for any purpose by the shareholder even when the company is finally liquidated and dissolved. Assets and/or moneys received by a shareholder from a liquidator are not consideration for a transfer of shareholding. Distributed assets and/or moneys which in fact are not consideration and do not become payable on a transfer are under section 46(2) deemed to be and directed to be taxed as capital gains. This being the true position, the main submission on behalf of the petitioner-company was that on a true construction of the taxing provisions in section 46(2), read with sections 45 and 48, there was no warrant for the finding that the taxable event for taxing the capital gains in respect of moneys received by the shareholder at different times arose only upon the final distribution made by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by a liquidator would fully and completely transfer the ownership thereof to its shareholders fully and completely at diverse different dates of distribution. The capital gains thus made by shareholders are in fact made by them in the year in which the capital assets and/or moneys are distributed to each of them and each becomes owner thereof. Thus the year in which the ownership of the capital and/or the moneys is transferred will be "the previous year" for assessment of capital gains made by a shareholder. It is difficult to understand how the gains intended to be taxed will not have been made in the year in which the ownership of the assets and the moneys distributed is acquired by a shareholder. In this connection some assistance can be found in the provision in sub-section (2) of section 46 which provides that the market value would be of the date of distribution. The transaction on which the capital gains arise is the transaction of distribution of money and/or assets by liquidator. This transaction is very extremely remotely connected with the transaction of becoming a shareholder and the expenses and price incurred for that purpose. Towards distribution of capital assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. On the contrary, it is clear that the liability created under section 46(2) must arise on the dates of transfer of the deemed gains to shareholders by distribution made in liquidation. Now it is true that the assessee-company was not entitled to have resort to this court in writ jurisdiction and also to maintain the departmental appeal filed by it. It is, however, not possible for me to coerce the assessee-company to withdraw its department, appeal because it is quite possible that in an appeal from this decision this court may force the assessee-company to resort to the departmental appeal only. It is also not possible for me to make a finding that this petition is not well-founded, in view of the fact that the vires of section 46 are challenged in this petition. I have not found it necessary to decide this question because I was in favour of the assessee-company on the main question. The question now decided is of considerable importance. The petition was admitted in 1967 and has reached hearing in June, 1972. In those circumstances it would not be appropriate to reject this petition merely on preliminary grounds. In the result, the rule is made absolute. The impugned or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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