2024 (12) TMI 24 - AT - Income Tax

Gain on land sold - LTCG or STCG - sale of land at Tiruvottiyur High Road received on liquidation of company - distribution of assets of the company on account of liquidation - AO by going through the provisions of section 2(47) noted that the property received by assessee on liquidation of company is transferred within the provisions of section 2(47) and the provisions of section 46(2) of the Act and treated this holding period by the assessee from 10.12.2012 i.e., the date of release deed by the company to the assessee and sold within one year - HELD THAT - The assessee i.e., 360 equity shares were held by assessee for last so many years in company which got liquidated and company gave land it was holding . The assessee along with other shareholders sold his share of property at Thiruvottiyur High Road and received sale consideration on various dates. We are of the view that the provisions of section 2(42A), Explanation 1 is very clear which explains that when a person received property consequent to liquidation of the company, the period of holding of asset has to be taken from the date of previous owner i.e., company held it. We agree with the contention of the assessee as the Explanation to Section 2(42A) of the Act is very clear and hence, we confirm the order of CIT(A). This issue of Revenue s appeal is dismissed. Applicability of provisions of Section 50C - A look at the provisions of section 50C of the Act shows that the same applies to a consideration received or accruing as a result of the transfer by an assessee of a capital asset. In the present case, the appellant has not received any consideration as a result of the transfer by him ie. the appellant has not transferred any capital asset. Rather, the appellant has received an assets of a company are distributed to its shareholders on its liquidation in the form of land at Seevaram which is not be a transfer by the company for the purposes of section 45 as per the provisions of section 46(1) of the Act - Thus provisions of section 50C of the Act are not applicable in the case of the appellant for the Seevaram land received on distribution of asset on liquidation of company. Therefore, the issue is decided in favour of the appellant.

Summary

Issues:
1. Treatment of sale of land as Long Term Capital Gain instead of Short Term Capital Gain.
2. Applicability of Section 50C of the Act on the sale of land situated at Seevaram.

Analysis:

Issue 1: Treatment of sale of land as Long Term Capital Gain
The appeal by the Revenue challenges the order of the CIT(A) treating the sale of land as Long Term Capital Gain instead of Short Term Capital Gain. The dispute arose from the transfer of land at Tiruvottiyur High Road received by the assessee during the liquidation of a company. The Revenue contended that there were effectively two transactions involved: the first being the transfer of shares on liquidation of the company and the second being the sale of the acquired property to a third party. The AO treated the land as a short term capital asset, while the CIT(A) held that the asset should be considered a long term capital asset based on the period of holding the shares in the company. The CIT(A) relied on Explanation 1(a) to Section 2(42A) of the Act to support the decision. The Tribunal affirmed the CIT(A)'s order, emphasizing the importance of considering the period of holding the asset from the date of acquisition of shares in the company.

Issue 2: Applicability of Section 50C of the Act
The second issue pertains to the applicability of Section 50C of the Act on the sale of land at Seevaram received by the assessee through liquidation. The Revenue contended that the provisions of Section 50C should apply, considering the market value of the asset received by the shareholder. However, the CIT(A) held that Section 50C does not apply in this case as the assessee did not transfer any capital asset but received it as part of the company's liquidation distribution. The Tribunal agreed with the CIT(A)'s interpretation, stating that when a person receives property upon a company's liquidation, it does not constitute a transfer of a capital asset under Section 50C. Therefore, the Tribunal dismissed the Revenue's appeal on this issue as well.

In conclusion, the Tribunal upheld the CIT(A)'s decision on both issues, dismissing the Revenue's appeal.