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TMI Blog1972 (6) TMI 13X X X X Extracts X X X X X X X X Extracts X X X X ..... me-tax Officer, in computing the income-tax liability computed the capital gains made by the petitioner-company for the assessment year 1962-63 at Rs. 47,97,735. The relevant facts are as follows : The assessee-company, which is registered in the United Kingdom, held a substantial share capital of an Indian company of the name of Cable and Wireless Ltd. and carried on the business of this company as its subsidiary company. This Indian company was taken over by the Government of India with effect from January 1, 1947, and went into voluntary liquidation from May 11, 1949. Between September, 1949, and September, 1961, this Indian company in liquidation paid five different amounts aggregating to Rs. 1,10,26,921 to the assessee-company. Out of these, two payments were made out of accumulated profits and admittedly accounted for as dividend paid over to the assessee-company. Three other payments, being respectively of Rs. 53,85,400, Rs. 25,07,001 and Rs. 2,39,934, aggregating to Rs. 81,32,335 were distributed respectively on September 12, 1949, November 16, 1953, and September 18, 1961, to the assessee-company as these payments were made to the assessee-company because under the Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 949 and 1953. He rejected the contention that tax on the capital gains made on distribution of money in liquidation by a shareholder should be on the footing that the particular distribution was capital gain made in the year of distribution and that it was not permissible for the revenue to accumulate and aggregate all distributions differently made in different years in the last year of distribution. He rejected the contention that at the highest the revenue could consider the last distribution and payment of Rs. 2,39,934 as capital gains made by the assessee-company in the year of assessment. The finding made by the first respondent are challenged in this petition on various grounds, including the ground that if the construction and effect of section 46 of the Income-tax Act was in accordance with the findings made by the first respondent, the section was unconstitutional and contravened the petitioner's fundamental rights guaranteed under article 14 of the Constitution. The further submission was that under the scheme of section 16(2), read with other relevant sections of the Income-tax Art the relevant year for assessing and taxing capital gains made by a shareholder on recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and in the year of transfer. Under section 48 the difference between the full consideration received by the seller and the cost previously incurred by him in acquiring the capital asset ultimately transferred represents the amount of capital gains. It is therefore that under section 45 the gains are taxed on the footing of the date of the transfer. It is also clear that the assets of a company in liquidation would be of the ownership of the company and that the tax on capital gains made on transfer of such assets would be paid by the company itself. The assets would be diverse, different and situated at different places. The transfers of the assets by the liquidator would be also in normal circumstances on different dates and by different contracts and deeds. In respect of solvent companies only it would become possible for a liquidator, after payment of debts and discharging other liabilities, from time to time to distribute money's received by him in liquidation by sale of the different assets at different times. It is also clear that the shareholder's only assets would be his shareholding. This shareholding is never transferred for any purpose by the shareholder even when the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng always irrelevant. It is also clear that the distribution of, capital asset or the moneys by a liquidator to a shareholder does not involve any transfer by a shareholder nor any consideration. The transfer by the liquidator of the capital asset to a shareholder is by reason of statutory rights created in favour of a contributory under the Companies Act. In fact, sub-section (1) of section 46 states that the distribution of assets by a company in liquidation to its shareholders "cannot be regarded as a transfer" by the company. It is also dear that distribution of more than one item of capital assets is liable to be made and can justifiably be made by a liquidator from time to time. The distribution of asset and moneys made from time to time by a liquidator would fully and completely transfer the ownership thereof to its shareholders fully and completely at diverse different dates of distribution. The capital gains thus made by shareholders are in fact made by them in the year in which the capital assets and/or moneys are distributed to each of them and each becomes owner thereof. Thus the year in which the ownership of the capital and/or the moneys is transferred will be "the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the shareholder does not deal with and transfer the capital asset of his ownership being his shareholding nor makes any transaction at all and is even so directed to be taxed for "capital gains" made is also clear. It is for this reason that in sub-section (2) of section 46 the phrase "be deemed to be" is included in the last part of the above phrase on which reliance is placed on behalf of the respondents. The purpose of the phrase is to provide for the manner of computation of deemed capital gains. I do not find any provision in sections 46 and 48 which justified the finding of the first respondent that the liability under sub-section (2) of section 45 could arise only when the final distribution of money and/or assets is declared in liquidation. On the contrary, it is clear that the liability created under section 46(2) must arise on the dates of transfer of the deemed gains to shareholders by distribution made in liquidation. Now it is true that the assessee-company was not entitled to have resort to this court in writ jurisdiction and also to maintain the departmental appeal filed by it. It is, however, not possible for me to coerce the assessee-company to withdraw its dep ..... X X X X Extracts X X X X X X X X Extracts X X X X
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