TMI Blog1999 (3) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... fits of Rs. 24,75,070 and that since the assessee's father the late S. Kumaraswamy had already been taxed under section 2(6A)(e) of the Indian Income-tax Act, 1922, on Rs. 4,89,144 no amount could be taxed as deemed dividend under section 2(22)(c) of the Income-tax Act, 1961 ?" The assessees, who are sisters and are daughters of one the late S. Kumaraswamy were shareholders in Palkulam Estates (Private) Limited, Nagerkoil, which went into liquidation, and in the process of liquidation, distributed assets in specie to its shareholders. The assessees in such distribution received 479.89 acres of agricultural land. That distribution not having been disclosed initially by the assessees, and having subsequently come to the notice of the Income-tax Officer, the assessments made for the assessment years 1970-71 and 1971-72 were reopened. After such reopening, the Income-tax Officer invoking section 2(22), sub-clause (c), and section 46(2) of the Income-tax Act brought to tax a sum of Rs. 24,75,070 as deemed dividend and the amounts in excess thereof under the head "Capital gains". On appeal the Commissioner held that the assessments had not been validly reopened in so far as the invocat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otwithstanding 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 the date of distribution, as reduced by the amount assessed as dividend within the meaning of sub-clause (c) of clause (22) of section 2 and the sum so arrived at shall be deemed to be the full value of the consideration for the purposes of section 48." Section 46(1) of the Act opens with non obstante clause and provides that despite what has been provided in section 45, the distribution of assets by a company on its liquidation to its shareholders is not to be regarded as a transfer by the company for the purposes of section 45 of the Act. Had the section stopped at that, no question of imposing any tax oil the capital gain arising to a shareholder from the receipt of any money or property in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company oil its liquidation to the extent to which the distribution is attributable to the accumulated profits of the company immediately before its liquidation, whether capitalised or not. For determining the amount which is to be treated as capital gains for the purpose of section 46(2) of the Act, from out of the amounts or the market value of the assets received by the shareholder, the dividend referred to in section 2(22)(c) is required to be deducted as if it is taxable as deemed dividend under section 2(22)(C) or the Act, the same amount cannot once again be treated as capital gain and taxed for a second time. So far as section 45 of the Act is concerned, as noticed earlier, had the section merely provided that the receipt by the shareholder of money or assets from the company in liquidation does not amount to transfer, no tax could have been levied under the head "Capital gains". That is the reason why section 46(2) of the Act specifically provides for such a levy. The several provisions of the Act which are required to taken note, of for the purposes of determining the assessable capital gain under section 45 of the Act are to be excluded unless required to be conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the consideration for the purposes of section 48". It is, therefore, only on account of that deeming provision, section 48 is required to be looked into for determining the extent of the further deduction by way of the cost of acquisition of the asset, and applying thereto, the indexed cost of acquisition and the inflation index referred to in section 48 of the Act. The term "asset" has not been defined in section 2 of the Act. Section 2(14) of the Act defined "capital asset" as meaning property of any kind held by an assessee whether or not connected with his business or profession. Section 2(14) expressly excludes, inter alia, agricultural lands in India, not being land situate in the jurisdiction of a municipality, corporation, notified area committee, town area committee, town committee or cantonment Board which has a population of not less than ten thousand according to the last preceding census, and any area within such district not being more than eight kilometres, from the local limits of any such municipality or other body to which reference is made in section 2(14)(iii)(a) of the Act. The exclusion of agricultural lands to the extent provided in section 2(14)(iii)(a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s shareholders, the money so received would clearly be liable to be taxed as capital gains as provided under section 46(2) of the Act. The same result would follow even in cases where the company in liquidation chooses to transfer the asset in specie, rather than converting the same into money and, thereafter distributing the money. The thing that is being taxed under section 46(2) of the Act is, therefore, that which the shareholder receives-any money or other asset It is no doubt true that after the shareholder receives the asset from the company in liquidation, that very asset may be regarded as a capital asset, when he in his turn chooses to effect a transfer. That would be so because a transfer effected by him after he has become the owner of the asset is clearly a transfer for the purposes of section 45, which refers to capital assets, and which necessarily requires the consideration of the definition of the capital asset. If the asset so transferred by the shareholder falls within the excluded categories, he may not be liable for capital gains on such transfer. That fact, however, cannot have any impact on the effect of section 46(2) of the Act, when he receives the asset ..... X X X X Extracts X X X X X X X X Extracts X X X X
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