Section 46 - Capital Gain on Distribution Of Assets By Companies In Liquidation - Income Tax - Ready Reckoner - Income Tax

Capital Gain on Distribution of Assets by Companies in Liquidation Section 46(1): Tax Treatment in the hands of Company This section is applicable where the assets of the company are distributed to shareholders on the liquidation of the company and there is no transfer in such distribution and capital gain is not chargeable in the hands of the company. In case if the liquidator sells the assets of the company resulting in a capital gain, and distributes the funds then the company is liable to pay the tax Section 46(2): Tax Treatment in the hands of Shareholders Where a shareholder receives money or other assets at the time of liquidation of the company (in which he is a shareholder), section 46(2) is applicable. Capital gain u/s 46(2) shall be determined as follows: Consideration price shall be the money received and/or the market value of other assets on the date of distribution minus deemed dividend under section 2(22)(c) . From the consideration calculated above, cost of acquisition/ indexed cost of acquisition, expenditure on sale etc. shall be deducted to find out capital gain. NOTES:- While determining the period of holding of the asset, the period subsequent to the date of liquidation shall not be considered Where a shareholder receives on liquidation amount less than what he has invested, he is entitled to loss, under the head capital gains u/s 46(2) of the Act. Situation in case of Foreign Investor/Non-Resident Shareholder The shareholder of the company may be a non-resident, who on liquidation receives assets of the company. Section 9 of IT Act states that any dividend paid by an Indian company outside India is income deemed to accrue and arise in India. Thus, the provisions of section 46 of the IT Act will be equally applicable to the non-resident shareholder.