1983 (2) TMI 19 - HC - Income Tax

Summary

Issues involved:
Interpretation of provisions under Income Tax Act related to taxation of dividends received in excess of original cost of shares as long-term capital gains.

Detailed Analysis:

The case involved a question referred to the High Court by the Revenue under the Income Tax Act, 1961, regarding the taxation treatment of dividends received in excess of the original cost of shares by the assessee from the liquidator of a company in liquidation. The issue was whether such excess amount could be included in the assessee's hands as long-term capital gains. The Revenue contended that the amount should be brought to charge, while the Tribunal, relying on previous decisions, held otherwise.

The Revenue argued that even if the excess dividends were not chargeable under section 45 of the Act, they could be taxed under section 46(2) as a specific provision for taxing amounts received by shareholders as capital gains exceeding the original cost of acquisition of shares. The counsel referred to various court decisions supporting this interpretation, emphasizing that section 46(2) is an independent charging provision.

The High Court considered previous judgments, including one where it was held that section 46(2) is a charging provision distinct from section 45, applicable to all receipts from the liquidator during the liquidation of a company. The Court also highlighted a Supreme Court decision affirming the applicability of section 46(2) to specific types of companies falling within the definition of "company" under the Act.

The Court noted that the company in question was conceded to fall within the definition of a company under the Act, making section 46(2) directly applicable. It emphasized that section 46(2) is a special provision for a particular situation, and its applicability cannot be excluded merely because a general provision like section 45 does not apply.

Therefore, the High Court answered the question in the negative, ruling in favor of the Revenue. The assessee was directed to pay the costs, including counsel's fee.