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TMI Blog2025 (5) TMI 527X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 31.01.2007. 2. All three Appellants had been successful before the Commissioner of Income tax (Appeals). Appeals had been filed at the instance of the Revenue and the Tribunal initially had, vide order dated 09.03.2005 dismissed the appeal filed in the case of Mr.T.R.Srinivasan. A Miscellaneous Petition had been filed by the Revenue in respect of the aforesaid order that came to be allowed on 15.10.2006 recalling order dated 09.03.2005 and restoring the appeal to the file of the Tribunal, ultimately to allow the appeal by order dated 20.11.2009 assailed in T.C.No. 5 of 2010. 3. In allowing the appeal as above, the Tribunal noted that co-ordinate Benches of the Tribunal had, in the case of Mrs.Lakshmi Muthukrishnan, allowed the Departmental appeals on 06.02.2006 and in the cases of Mr.T.M.Ramasamy (another shareholder in whose case the appellate order has attained finality) and Mr.T.R.Balasubramaniam, allowed the Departmental appeals on 22.12.2006. 4. The substantial questions of law raised in T.C.(A) No. 5 of 2010, admitted by this Court on 19.01.2010 are:- 1) Whether in the facts and circumstances of the case, the Income Tax Appellate Tribunal is right in holding that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The proceedings for re-assessment were finalized wherein the assessing authority computed the cost of acquisition in terms of Section 49(1)(iii)(c) of the Act at a sum of Rs. 32,69,795/-. 10. Aggrieved with the above computation, a first appeal was filed before the Commissioner of Income-Tax (Appeals) (CIT(A)), who allowed the appeal on 16.03.1998. Aggrieved the Revenue filed appeals before the Tribunal. One of the appeals came to be dismissed 09.03.2005 as against which a Miscellaneous Petition had been moved by the Revenue. The Miscellaneous Petition came to be allowed on 06.10.2006 recalling order dated 09.03.2005 and listing the appeal for hearing de novo. 11. Ultimately, the revenue's appeal came to be allowed on 20.11.2009, aggrieved with which, T.C.(A) No. 5 of 2010 has been filed by the Assessee. As far as the remaining two Appellants are concerned, the appeals of the Revenue came to be allowed on 06.02.2006 and 22.12.2006 as against which the remaining two Tax Case (Appeals) have been filed. 12. The issue arising for consideration in all three appeals is one and the same. The stand of the Appellants is that Section 55(2)(b)(iii) overrides the provisions of Section 49(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reholders 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. 48. Mode of computation.- The income chargeable under the head "Capital gains" shall be computed, by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely:- (i) expenditure incurred wholly and exclusively in connection with such transfer; (ii) the cost of acquisition of the asset and the cost of any improvement thereto. 16. The provisions of Section 46(2) as applicable to shareholders, states that where a shareholder, on the liquidation of a compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value of the asset on the date of distribution will be presumed to be after such reduction and no further reference will be made to sec.2(22)(C). Again, for the sake of brevity, let us name this transaction, l.e. the transaction of transfer of shares as transaction A. The transfer of shares in this case is the first taxable event and since the assessee has received an asset other than money on liquidation, capital gains will be computed by deducting the cost of shares from the fair market value of the asset. The shares have been acquired by the assessee himself and therefore, there is no question of adopting any cost to the previous owner. The year of taxability will be the year in which the distribution of assets has taken place, i.e. the year in which the assessee received the asset. In the present case, the assessee has received the asset in financial year 1990-91 and hence capital gains would be taxed in assessment year 1991- 92. This entire transaction A can be presented in arithmetical form by taking a hypothetical example. Let us assume the following : 1. cost of acquisition of shares by the assessee Rs.100/- 2. fair market value of property received Rs.150/- 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee has offered the capital gains of Rs. 50/- for taxation in assessment year 1991- 92. Therefore, the provisions of sec.55(2)(b)(iii) would come into play. Accordingly, the presentation of transaction B in such a situation would be as follows : Computation (2) Sales consideration on sale of property Rs.170/- Less : Cost of acquisition Rs. 150/- (being fair market value of the property on the date of distribution) Rs. 20/- capital gains chargeable to tax in assessment year 1992-93. To repeat, while presenting the above two computations, we. have presumed, (a) the two transactions have taken place in different years, and (b) the assessee has offered for tax the capital gains arising in the year of its accrual. Let us take another situation. We retain presumption (a) as it is. So far as presumption (b) is concerned, let us presume that the assessee has not offered the capital gains for taxation in the year of its accrual. In that case. in our view. the cost of acquisition will be as per sec.49(1)(II)(C), I.e. it will be the cost to the previous owner. In that case, the arithmetical presentation will be as follows : Computat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cost of acquisition. The assessee has practically done this only with a slight difference. Instead of making two computations as in computation (1) and computation (2) above, he has integrated both the computations into one as follows : Computation (4) Sales consideration of the property Rs. 170/- Less: Cost of acquisition of shares Rs.100/- Rs. 70/- capital gains chargeable to tax in assessment year 1991-92 Thus, If capital gains arising in transaction A are treated as assess to tax earlier, then, whether the computations are separately done as per computation (1) and (2) or they are integrated into one as in computation (4), it makes no difference. However, the departmental view is as follows : Computation (5) Sales consideration of the property Rs. 170/- Less: Cost of acquisition of the company Rs. 80 Rs. 90/- capital gains chargeable to tax in assessment year 1991-92 The department is canvassing for the above computation despite the fact that capital gains arising in transaction A are being taxed as per computation (4). Again, in our view, computation (5) should be adopte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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