TMI Blog1976 (3) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... eady received the full value of his original investment in the form of shares in the new company at the very first distribution itself, the Income-tax Officer brought this sum of Rs.8,331, received by the assessee, as capital gains under section 46(2) of the Income-tax Act, 1961, hereinafter called the Act. The assessee preferred an appeal to the Appellate Assistant Commissioner and contended that there was no transfer of a capital asset by the appellant in the previous year relevant to the assessment year under appeal to render him liable to be assessed in respect of any capital gains. The Appellate Assistant Commissioner held that when a company is taken into liquidation and the liquidator starts distribution of the assets of the company among the shareholders, there is a progressive extinguishment of the rights of the shareholders with each distribution. He referred to the definition of the word " transfer " in section 2(47) of the Act which included relinquishment of the asset or the extinguishment of any rights therein also coming within the meaning of the word " transfer ". Inasmuch as the transfer in relation to a capital asset had been given an extended meaning to include a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " transfer " in section 2(47), such profits or gains arise from the transfer of the shares within the meaning of section 45 of the Act and accordingly liable to be included in the total income of the assessee. He also wanted to infer a legislative intention to treat the distribution of the asset of a company among its shareholders on its liquidation as a transfer by a reference to section 46(1) of the Act. Under section 45 any profits or gains arising from the transfer of a capital asset shall be chargeable to income-tax under the head " capital gains " . The word " transfer " is defined in section 2(47) in relation to a capital asset as including "sale, exchange or relinquishment of the asset, or extinguishment of any rights therein or compulsory acquisition thereof under any law ". The word " transfer " was not defined under the Indian Income-tax Act, 1922. But section 12B of that Act provided that tax shall be payable by an assessee under the head " capital gains " in respect of any profits or gains arising from the sale, exchange, relinquishment or transfer of a capital asset. In cases arising under section 12B of the old Act, the Supreme Court in Commissioner of Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x. Now, as we have already pointed out above, when a shareholder receives moneys representing his share on distribution of the net assets of the company in liquidation, he 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 or rights in the share. The share merely represents the right to receive moneys on distribution of the net assets of the company in liquidation and that right is satisfied and, by satisfaction, extinguished when such moneys are received by the shareholder. Such moneys received by the shareholder do not represent any consideration received by him as a result of the extinguishment of his rights in the share. It is not the extinguishment of his rights in the share for which consideration is received by him , it is rather because moneys representing his share in the distribution are received by him that his rights in the share are extinguished." We are, respectfully, in entire agreement with this reasoning and conclusion. This decision also was followed by the Patna High Court in Commissioner of Income-tax v. Vijoy Kumar Budhia [1975] 100 ITR 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e with the learned counsel for the revenue that section 46(2) deems the receipt of the money or other assets on liquidation as profit or gain " arising from transfer " within the meaning of section 45. There are no words in section 46(2) which create a fiction of transfer. What all section 46(2) provides is 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. It is thus an independent provision making the amounts received also chargeable to income-tax under the head " capital gains " though it did not arise from transfer of a capital asset. The learned counsel for the assessee contended that only capital gains which is chargeable under section 45 is included in the definition of income in section 2(24)(vi) and that though section 46(2) provided for taxing the amount received under the head " capital gains " it had not been made part of the income or total income and that, therefore, even if section 46(2) intended to charge to income-tax the amount received on liquid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me provision also provided for the manner of computation by stating that the sum so arrived at shall be deemed to be the full value of the consideration for the purpose of section 48. Therefore, even if capital gains of the nature falling under section 45 is only included in the definition of income in section 2(24)(vi) and not any other kinds of capital gains, section 46(2) made the amount received by the shareholder on liquidation of a company a chargeable income under the head " capital gains " and, therefore, it will have to be included in the total income of the assessee. Thus, the definition of the word " income " understood in the light of the scheme of the Act clearly included the amount chargeable to tax under section 46. Some of the decisions which had referred to the provisions of section 46(2) also support our view. In Commissioner of Income-tax v. R. M. Amin [1971] 82 ITR 194 (Guj) the Uganda company which went into liquidation was not a company within the meaning of section 2(1) of the Act. Therefore, the assessee was held not chargeable to tax under section 46(2) in respect of the monies received by him on liquidation of the said Uganda company. But dealing with an a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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