LexCOMMISSIONER OF INCOME TAX, GUJARAT-II, AHMEDABAD versus R. M. AMIN
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A B c D E F G H 220 COMMISSIONER OF INCOME TAX, GUJARAT-II, AHMEDABAD v. R. M. AMIN November 26, 1976 (H. R. KHANNA AND JASWANT SINGH, JJ.] Income Tax Act 1961-Sec. 2(17), 2(47), 45, 46(2)-Capital fains-- Distribution of assets by a liquidator of company in voluntary liquidatiofl-lf liable to capital gains tax-If foreign company whiclt is not a company within the meaning of the Income Tax Act-Company-Meaning of-Transfer. The respondent assessee acquired before 1-1-1954 certain shares in a private limited company incorporated in Uganda for Sh. 192002=Rs. l ,28,000 /-. The said company went into voluntary liquidation in the year 1961. The liquidators sold the assets of the company and the assessee received an amount equivalent to Rs. 3,12,326/-. The Income Tax Offi:er treated the difference bttween the amount received on liquidation and the amount paid by the assessee for the· acquisition of shares as capital gains liable to tax within s. 45 of the Income Tax Act, 1961. The Income Tax Officer held that since the Uganda company was not a. company within the meaning of s. 2(17) of the Act, the assessee was not entitled to the benefit of s. 46(2) and, therefore, the entire amount was liable to be taxed. On an appeal, the AAC held that the transaction amounted to a transi'er within the meaning of s. 2(47) b~cause 1here was ex- tinguishment of the rights in the capital assets as represented by the shares. The Tribunal held that it was not transfer within ~he meaning of s. 2(47). Th.,. High Court decided the reference in favour of the assessee on the ground that when a shareholder received monies representing his share on distr!bution of the net assets of the company in liquidation, he receives such monies in satis- faction of the right which belongs to him by virtue of his holding the share and not by way of consideration for the extinguishment of his right in the share. Dismissing the appeal by certificate, HELD: (1) The Uganda comp~ny is not a company within the meaning of s. 2(17). There was no transfer as contemplated by the Act to attract the levy of capital gain tax. This Court in the case of Madurai Mills has already held that the act of liquidation in distnouting the assets of the company which had gone into voluntary liquidation did not result in the creation of new rights. It merely entailed recognition of the legal rights which were in existence prior !o the distribution. (223 C, 224 E-F] Commissioner of Income-tax, Madras v. Madurai Mills Co. Ltd., 89 ITR 45, followed. (2) The legislature made express provisions in s. 46(2) for levying capital' gains tax in respect of distribution of assets of a company. But for the said provision distribution of assets on the liquidation of a company would not attract the capital gains tax under s. 45. Since the Uganda company is not a company within the meaning of the Act the provisions of s. 46(2) do not apply to it. The said distribution, therefore, does not attract capital gains tax. Section 46 (2) creates the liability of a shareholder to pay the tax on capital gains and also prescribes the mode of calculating the capital gai'.18. (225 A-Fl CIVIL APPELLATE JURISDICTION: Civil Appeal No. 51 of 1972. (From the judgment and order dated the 16th Oct., 1970 of the Gujarat High Court in I.T. Ref. No. 4 of 1967) ( -.• I c. I. T. GUJARAT v. R. M. AMIN (Khanna, J.) 221 V. S. Desai, J. Ramamurthi and Girish Chandra, for the appellant. B. Sen, Mrs. A. K. Verma, K. J. John and Shri Narain for the respondents. · The J;1dgmcnt cf the Court was delivered by KHANNA, J. This appeal on certificate is against the judgment of Gujarat High Court whereby the High Court answered the following ~ucstion referred to it under section 256(1) of the Income-tax Act, l 961 (hereinafter referred to as the Act of 1961) in favour of the .assessee-respondent and against the revenue : "Whether on the facts and in the circumst-ances of . the case, there was a transfer of a capital asset within the meaning of section 45 read with section 2 ( 4 7) of the Income-tax Act, 1961 ?" The matter relates to the assessment year 1962-63, for which the .accounting previous year was calendar year 1961. The assessee who is an individual held 192 shares of Kawelengoji Ginneries Ltd., J'(ampala, a private limited company incorporated in Uganda (here- inafter referred to as the Uganda comp•any). Those shares were acquired by th
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