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TMI Blog1976 (3) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... pany was taken into liquidation on May 11, 1949. The liquidator of the company, inter alia, distributed the following amounts towards and in respect of distribution of capital, viz : Rs. 53,85,400 on September 12, 1949. Rs. 25,07,001 on November 16, 1953. Rs. 2,39,934 on September 18, 1961. In addition to the above amounts a sum of Rs. 25,07,001 was received as deemed dividend under section 2(6A) of the Income-tax Act, 1922, on August 1, 1953, and a sum of Rs. 3,87,585 on September 18, 1961. The Act came into force on April 1, 1962. As the last amount towards distribution of capital, namely, Rs. 2,39,934, was received by the petitioners on September 18, 1961, i.e., during the accounting period for the assessment year 1962-63, the Income-tax Officer wanted to tax the petitioners in respect of all the amounts received by them towards distribution of capital on September 12, 1949, November 16, 1953 and September 18, 1961. By his letter dated September 16, 1966, the Income-tax Officer wrote to Messrs. A. F. Ferguson Co., chartered accountants of the petitioners, that a sum of Rs. 2,39,934 (being the last amount received towards distribution of capital) he proposed to incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave to be taken into account as full value of consideration for the purpose of computing capital gains under section 46(2). The Income-tax Officer also rejected the contention of the petitioners that the fair market value as on January 1, 1954, of the capital assets could be arrived at after taking into consideration past realisations before January 1, 1954. He also took the view that the value of bonus shares would be excluded from the cost of acquisition of the total shareholdings of the petitioners. He also took the view that the cost of acquisition of the shares would be determined at Rs. 33,34,600 in the aggregate and on that footing he treated that a sum of Rs. 47,97,735 would be capital gains (long-term). On the basis of this assessment order on March 31, 1967, a notice of demand under section 156 of the Act was issued requiring the petitioners to pay a sum of Rs. 14,60,910.16 for the assessment year 1962-63 after taking into account the amount that was already deducted at source. The petitioners by the present petition presented on April 27, 1967, challenged the validity of the assessment order dated March 30, 1967, for the assessment year 1962-63 on various grounds. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by satisfaction of all its liabilities and/or by distributing the same amongst the members of the company and that such right cannot be said to have come to an end by interim distribution by the liquidator inasmuch as the member has still a right to further participate in the distribution of the company's assets. He also submitted that the earlier distribution of moneys was merely in the nature of instalments paid by the liquidator in the course of his realisation of assets and the final taxable event occurred only when the final distribution was made inasmuch as with the final distribution only the assessee's right as a shareholder was extinguished. He, therefore, submitted that the learned judge was in error in the view taken by him in quashing the impugned assessment order. It is common ground that the sum of Rs. 53,85,400 was received by the petitioners on September 12, 1949, and the sum of Rs. 25,07,001 on November 16, 1953, when the Indian Income-tax Act, 1922, was in force. Under the said Act there was no provision for payment of tax on capital gains at the time when the said amounts were received. The liability for payment of tax on capital gains, according to the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 25,07,001 was received on November 16, 1953, the said amounts could not be brought for levy of income-tax under the head " Capital gains ", because, on the dates of distribution of these amounts, there was no provision in the Indian Income-tax Act, 1922, to levy income-tax under the head " Capital gains ". It is undoubtedly true that the final dividend towards distribution of capital, namely, the sum of Rs. 2,39,934 was received by the petitioners on September 18, 1961, i.e., during the relevant accounting period for the assessment year 1962-63. However, there is nothing in section 46(2) to indicate that such receipt of the amount during the relevant accounting period will by itself be sufficient to render the other amounts which were received by the assessee in the years 1949 and 1953 subject to liability for income-tax under the head " Capital gains ", because both in the year 1949, as well as in the year 1953, when the amounts were distributed by the company and received by the petitioners there was no provision under the Income-tax Act for levy of income-tax on " Capital gains ". It is not possible for us to accept the contention of Mr. Joshi on behalf of the Income-tax Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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