TMI Blog1990 (3) TMI 33X X X X Extracts X X X X X X X X Extracts X X X X ..... gains as returned : 2,83,596 Less : Previous year's loss set off : 2,96,624 ---------------- Balance loss to be carried forward : 13,028 ---------------- Thereafter, the Income-tax Officer reopened the assessment under section 147(b) of the Act. In making the reassessment, the Income-tax Officer computed the capital gains at Rs. 2,83,596. This the Income-tax Officer has done by relying on the detailed reasons given by him in the assessment for the assessment year 1966-67, wherein the carried forward loss was not given a set-off. As against the assessment made for the assessment year 1966-67, there was an appeal to the Appellate Assistant Commissioner who held that the assessee was not entitled to carry forward the loss and the further appeal to the Tribunal was withdrawn on this point. However, in the assessment year under consideration, the assessee appealed to the Appellate Assistant Commissioner and submitted that the capital gains would not be the entire receipts of Rs. 2,83,596, but the capital gain ought to have been computed in accordance with the provisions of the Act. In the assessment year 1968-69, the assessee received disbursement of certain amounts from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the shares: 9,36,690.00 Less : Amount received on first distribution in 1960 : 6,83,522.00 ----------------------- Unabsorbed cost of acquisition : 2,53,168.00 Second distribution in March, 1968 : 74,520.00 ----------------------- Loss under the head "Capital Gains" relating to the assessment year 1968-69 2,53,168.00 Less: 74,520.00 ----------------------- 1,78,648.00 Harveys Private Ltd. Cost of acquisition : 9,35,000.00 Less : Amount received on first distribution in 1960 : 10,58,767.00 ------------------------- Surplus: 1,23,766.00 ------------------------ The Appellate Assistant Commissioner, however, ultimately came to the conclusion that this amount could not be subjected to tax under section 12B(2) in view of the decision of the Supreme Court in CIT v. Madurai Mills Co. Ltd. [1973] 89 ITR 45. Therefore, according to the Appellate Assistant Commissioner, since the full cost of acquisition had been recouped on the first distribution, the amount of Rs. 2,02,250 received in March, 1968, on account of the second distribution is assessable in full. In so far as the share of the Indian Mills Supply Co. (P.) Ltd. is concer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ----------- 3. Indian Mills : Value of shares as on January 1, 1954 Rs. 221.48 x 279 = Rs. 61,793 Actual cost of purchase of shares Rs. 100 x 1= Rs. 100 ------------------------ Rs. 61,893 ------------------------ Learned counsel for the assessee also gave a concession to the effect that he would not ask for reduction of the value of shares purchased after January 1, 1954, either in the case of Harveys or in the case of Indian Mills. Therefore, in respect of Harveys, he would seek only deduction of the market value as on January 1, 1954 of 5,000 shares, i.e., Rs. 6,85,000, included in the amount of Rs. 9,33,000 and in the case of Indian Mills, he would seek deduction only of the value of 279 shares held on January 1, 1954, viz., Rs. 61,793, included in the value of Rs. 61,893. In the case or Comorin Co., since all the shares were acquired prior to January 1, 1954, he was seeking deduction of the full substituted market value of Rs. 9,36,690. According to learned counsel for the assessee, the cost of acquisition which the Appellate Assistant Commissioner has referred to in his order is the same aggregate cost of acquisition as given by the assessee. The contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 954, amounting to Rs. 6,83,000 should be deducted from the full value of consideration of Rs. 2,02,050, then the loss would be Rs. 4,82,950. In the case of Indian Mills Supply (P.) Ltd., the full value of consideration was Rs. 613 and the cost of acquisition of 279 shares as on January 1, 1954 would be Rs. 61,793. If that is so, in this case also, the loss would be Rs. 61,180. Thus, the aggregate loss according to the Tribunal under the head "Capital gains" would thus be Rs. 14,06,300 less profit in Binny shares of Rs. 6,413 = Rs. 13,99,887. Before us, learned standing counsel for the Revenue contended that while computing the capital gain under section 46(2) of the Income-tax Act, 1961, in the assessment year under consideration, i.e., 1968-69, no cost of acquisition can be deducted because, according to the provisions of the above-said section, the cost of acquisition and the dividend under section 2 (22) (c) are permissible deductions only from the first distribution of the assets by the liquidator in a case where a company has gone into liquidation. Learned standing counsel pointed out that, in the instant case, the first distribution of assets from the abovesaid three compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd., Comorin Investment and Trading Co. (P.) Ltd. and Harveys (P.) Ltd., the sums of Rs. 613, Rs. 74,520 and Rs. 2,02,050, respectively. The assessee contended that while computing the capital gain for the assessment year 1968-69 under consideration as per the provisions of section 46(2) of the Income-tax Act, 1961, the cost Of acquisition should be deducted. According to the Department, the assessee had already received the first distribution in the year 1960. Learned standing counsel for the Department contended that the assessee is entitled to deduction of the cost of acquisition from the full value of consideration as per the provisions of section 46(2) of the Income-tax Act, 1961, from the first distribution. Learned standing counsel pointed out that the distribution made by the official liquidator in the assessment year 1968-69 cannot be the first distribution since the assessee had already received the first distribution in the year 1960. Therefore, in the second distribution, the assessee is not entitled to deduction of the cost of acquisition from the full value of consideration as per the provisions of section 46(2) of the Income-tax Act, 1961. It remains to be seen th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1965-66 a sum of Rs. 8,331. As the assessee had already received the full value of his original investment in the form of shares in the new company at the first distribution itself, the officer brought this sum of Rs. 8,331 to tax as capital gains under section 46(2) of the Income-tax Act, 196l." On these facts, this court held as under (headnote): "(1) that the distribution of assets of the company in liquidation does not amount to a transfer even under the extended definition of the word 'transfer' in section 2 (47); (2) section 46(1) is merely intended to make it clear that the company would not be liable for payment of any capital gains tax; (3) that section 46(2) provides that the amount received by the shareholder shall be chargeable to income-tax under the head 'Capital gains' and the amount to the extent it is not liable to be treated as dividend shall be deemed to be the full value of the consideration for purposes of section 48 and hence is an independent provision making the amounts received chargeable to income-tax under the head 'Capital gains' though it did not arise from the transfer of a capital asset. (4) Accordingly, even if capital gains of the nature f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cond and final distribution made by the official liquidator in March, 1968. In that view of the matter, we are of the opinion that the Tribunal was correct in computing the capital gains in the case of the assessee for the assessment year 1968-69, in accordance with the provisions of section 46(2) of the Income-tax Act, 1961, after deducting the cost of acquisition from the second and final distribution made by the official liquidator in March, 1968, which is the full value of consideration. However, we consider that the question framed and referred to us by the Tribunal, in this reference, does not reflect the real issue arising on the facts and in the circumstances of the case. Therefore, considering the facts and circumstances arising in this case, we reframe the question comprehensively reflecting all facts as under : "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct, while computing the capital gain under section 46(2) of the Income-tax Act, 1961, for the assessment year 1968-69, in the case of the assessee, in deducting the cost of acquisition of shares held in various companies, from the full value of the consideration, viz., ..... X X X X Extracts X X X X X X X X Extracts X X X X
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