Distribution of assets in the event of Liquidation [Sec. 2(22)(c)] - Income Tax - Ready Reckoner - Income Tax

SEC 2(22)(c) : DISTRIBUTION OF ASSETS IN THE EVENT OF LIQUIDATION Dividend includes any distribution made to the shareholders of a company on its liquidation, to the extent to which such distribution is attributable to the accumulated profits of the company immediately before its liquidation, whether capitalized or not. Notes: The FMV of assets on date of distribution shall be considered for determining the deemed dividend. Distribution is deemed as dividend to the extent of accumulated profits, whether capitalized or not, immediately before liquidation. Section 46(1): Notwithstanding anything contained in section 45 , where the assets of a company are distributed to its shareholders on its liquidation, such distribution shall not be regarded as a transfer by the company. Section 46(2) : Where a shareholder on the liquidation of a company receives any money or other assets from the company, then he shall be chargeable to income-tax under the head capital gains and the sales consideration for the purposes of section 48 shall be as under: Moneys Received Add: Market value of the assets received as on the date of distribution Less: Amount assessed as dividend under section 2(22)(c) Sales consideration as dividend under section 2(22)(c) Section 2(42A) : For determining the nature of capital gains arising from the shares in liquidating company, the period subsequent to the date on which the company goes into liquidation shall not be considered. Where the capital asset became the property of the assessee on distribution of capital assets by a company on its liquidation and the shareholder has been assessed to income-tax under the head Capital Gains in respect of that asset under section 46, the cost of acquisition of the asset will be the fair market value of the asset on the date of distribution. NOTE:- This Section is applicable only in case of Equity Shareholders.