Patna High Court
Addl. Commissioner Of Income-Tax vs Uma Devi Budhia And Ram Prasad Budhia on 6 November, 1984
Equivalent citations: [1986]157ITR478(PATNA)
Author: Lalit Mohan Sharma
Bench: Lalit Mohan Sharma
JUDGMENT Ashwini Kumar Sinha, J.
1. Both the tax cases are references under Section 256(1) of the Income-tax Act, 1961 (hereinafter called " the Act "), made by the Income-tax Appellate Tribunal, Patna Bench " A ", Patna. Identical question of law is involved in both these tax cases and hence they are disposed of by a common judgment.
2. In Tax Case No. 8 of 1974, the question of law referred for the opinion of this court is as below :
"Whether, on the facts and in the circumstances of the case, the amount of Rs. 14,560 was assessable in the hands of the assessee under the head ' Capital gains ' ?"
3. In Tax Case No. 12 of 1974, the question of law referred for the opinion of this court is as below :
" Whether, on the facts and in the circumstances of the case, the amount of Rs. 30,900 was assessable in the hands of the assessee under the head ' Capital gains ' ? "
Tax Case No. 8 of 1974 :
4. The assessment year in question is 1964-65. The original assessment for this assessment year was made determining a capital gain of Rs. 1,640 on properties received from M/s. Ganpati Properties (P) Ltd, The assessee was one of the shareholders of M/s. Ganpati Properties Ltd. On voluntary liquidation of the company, the assessee received 5/102 shares in the undivided properties and a piece of land measuring about 3 acres besides a building. The liquidator had valued that property at Rs. 1,53,000 and the share of the assessee in the same came to Rs. 7,500. The Income-tax Officer found that the valuation of the assets as made by the liquidator was underrated and inadequate. The Income-tax Officer was of the view that the value given to these properties by the liquidator was low and considering the rental income from these properties, he estimated the value of the land at Rs. 3,86,000 and the value of the building at Rs. 63,200. On this basis, the value of the entire property was taken to be Rs. 4,50,000. The Income-tax Officer was of the view that the liquidator had grossly underestimated the value and held that, in the instant case, the provisions of Section 52(1) were applicable. The Income-tax Officer worked out the capital gain on the whole property at Rs. 2,77,000 and also worked out the assessee's share by taking 5/102 of the above capital gain. Thus an amount of Rs. 14,560 was taken as capital gain by the Income-tax Officer.
5. The assessee went in appeal and the Appellate Assistant Commissioner held that the approval required to be taken under Section 52(2) of the Act had not been taken in this case while enhancing the value of the capital gain and instead, only approval under Section 52(1) had been taken from the Inspecting Assistant Commissioner. The Appellate Assistant Commissioner, however, following the decision in an earlier case of a shareholder, vacated the reassessment order and directed that the value of the capital gain be taken at the same figure which was taken in the original assessment.
6. The Department went before the Appellate Tribunal and the Tribunal following the decision in the case of CIT v. R.M. Amin, [1971] 82 ITR 194 (Guj), held that there was no transfer of capital asset in this case and the Tribunal, therefore, held that the Appellate Assistant Commissioner rightly set aside the higher valuation taken in the reassessment for the computation of capital gain. The departmental appeal was dismissed by the Tribunal.
7. The Department thereafter filed an application before the Tribunal under Section 256(1) of the Act and thus the matter has come to this court.
Tax Case No. 12 of 1974 :
8. In this case, the assessee was one of the shareholders of M/s Ganpati Properties (P) Ltd. On the liquidation of the company, the assessee received a piece of land on which the premises of Shri Vishnu Talkies, Kanchi, stood. According to the liquidator, the value of the land of 15 kathas carne to Rs. 45,000. The Income-tax Officer considered this to be an undervaluation and estimated the cost of land at Rs. 5,000 per katha. The Income-tax Officer was of the view that the assessee was closely related to the liquidator and he was of the view that there was a transfer effected with the object of avoidance or reduction of liability under Section 45 of the Act. The Income-tax Officer further estimated the fair market value of the properties on the date of transfer at Rs. 75,900 as against Rs. 45,000 estimated by the liquidator. The Income-tax Officer held that there being a difference between the value given by the liquidator and the market value of the properties, the same was to be assessed at Rs. 30,900 as capital gain.
9. The assessee went in appeal before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner held that there was no object to avoid tax and that the company had not gone into liquidation for the purposes of avoiding capital gains tax. The Appellate Assistant Commissioner held that the capital gains did not arise in the hands of the transferee but in the hands of the transferor. The Appellate Assistant Commissioner further held that the provisions of Section 52(1) of the Act were not applicable in the instant case and the assessee had not transferred any asset and was only a recipient. The Appellate Assistant Commissioner deleted the addition of Rs. 30,900.
10. The Department thereafter went before the Tribunal. The Tribunal agreed with the Appellate Assistant Commissioner and held that the provisions of Section 52(1) were not attracted in the instant case and also held that the assessee had not transferred any asset but had merely acquired an asset in this case. The Tribunal held that the assessee, in the instant case, had received these assets on the liquidation of the company of which he was a shareholder and this did not amount to transfer of a capital asset. The Tribunal also relied upon the case of CIT v. R.M. Amin, [1971] 82 ITR 194 (Guj) and held that where a shareholder received money representing the share on distribution of the assets of the company in liquidation, he received such money in satisfaction of the right which belonged to him and not by way of consideration for the extinguishment of this right. The Tribunal further held that, in the instant case, it could not be said that the company went into liquidation only to avoid tax. With these findings, the Tribunal agreed with the Appellate Assistant Commissioner and held that the Appellate Assistant Commissioner was justified in deleting the addition of Rs. 30,900 under the head " Capital gain".
11. The Department thereafter filed an application under Section 256(1) of the Act before the Tribunal and thus the matter has come to this court.
12. As would appear from paragraphs 2 and 3 above, the questions of law referred to this court for opinion are identical. ,
13. In both these tax cases, it would appear from the averment of facts given above that the Tribunal (in both the cases) based its decision on the case, CIT v. K.M. Amin, [1971] 82 ITR 194 (Guj).
14. The main question was whether there was any " Capital gain" on the distribution of assets on the liquidation of the limited company among the shareholders of the company.
15. On the facts of the cases, the learned senior standing counsel of the Income-tax Department contended that the Tribunal in both the cases had wrongly relied upon the case of CIT v. R.M. Amin, [1971] 82 ITR 194 (Guj) and contended that the facts of that case were clearly distinguishable and the dictum laid clown in that case could not be applied in the instant cases. The learned senior standing counsel for the Department further contended that in the instant cases, the assessees, on the facts of the present cases, were clearly chargeable to capital gains not under the general provisions of Section 45 but under the specific provisions of Section 46(2) of the Act.
16. There is enough force in the submission advanced by the learned counsel for the Department as would appear hereafter.
17. On the other hand, the learned counsel for the respective assessee contended that the Tribunal had rightly relied upon the case of CIT v. R.M. Amin, [1971] 82 ITR 194 (Guj) and was justified in deleting the respective additions in the two cases under the head " Capital gains ".
18. I may just mention here that the facts in the case of CIT v. R.M. Amin, [1971] 82 ITR 194 (Guj) are clearly distinguishable. In that case, the capital gains was held to be not assessable because the company of which the assessee was a shareholder was not registered in India, with the result that the said company fell outside the definition of company as laid down in Section 2(17) of the Act. The decision in that case was given with reference to Section 45.
19. If the facts of the instant cases were referable to Section 45 of the Act, the contention advanced by the learned counsel for the respective assessees was understandable but on the facts of the instant cases, it is really Section 46(2) of the Act which is attracted and hence there is no substance in the contention advanced on behalf of the assessee and I hold that the Tribunal wrongly applied the principles decided in the case of CIT v. R.M. Amin, [1971] 82 ITR 194 (Guj) for the purpose of deciding the point involved in the instant cases.
20. Section 46(1) of the Act makes it clear that where the assets of a company are distributed to its shareholders on its liquidation, it is not a transfer by the company for the purpose of Section 45. The company is not chargeable to income-tax on any capital gain in respect of such transaction. However, Section 46(2) imposes a liability on the shareholder and the shareholder becomes chargeable to income-tax tinder the head " Capital gains " in respect of money received or the market value of other assets received by him on the date of distribution.
21. Section 48 prescribes the mode of computation of income-tax chargeable under the head " Capital gains ". The computation of income under Section 48 has to be done by the Income-tax Officer, It is inherent in the exercise of that power to determine the full value of the consideration as provided in Section 46(2). The Income-tax Officer has a duty to determine the market value of the assets received by the shareholder on liquidation of the company on the date of distribution. A contributory receiving assets from a company does not necessarily receive the assets of the value determined by the liquidator. Where such a value has been determined by the liquidator, it is the duty of the Income-tax Officer and within his power to determine the market value of the assets received by the shareholder and such market value has to be determined as prevalent on the date of distribution.
22. The learned counsel for the respective assessee also attempted to contend that under Section 2(24) of the Act, "income" has been defined to include " (vi) any capital gains chargeable under Section 45 ", and not capital gains chargeable under Section 46(2) of the Act. There is no force in this submission advanced by the learned counsel for the respective assessee.
23. Section 2(24) of the Act defines income as including capital gains chargeable under Section 45. This does not mean that the capital gains chargeable under Section 46(2) of the Act is not assessable as income. The definition of income in Section 2(24) is inclusive and not exhaustive. Section 46(2), read with Section 48, in my opinion, fixes the liability for payment of income-tax on capital gains of the shareholder in a case covered by the provisions and this liability cannot be wiped off by reference to the inclusive definition of income in Section 2(24) of the Act. The definition in Section 2 itself starts with the expression "in this Act unless the context otherwise requires" and thus in Section 2(24) when capital gains are sought to be included, it must, on correct construction, mean that all " Capital gains " which are sought to be charged to income-tax under the said heading are included.
24. An identical question as involved in the instant tax cases was considered in the case of CIT v. Vijoy Kumar Budhia, [1975] 100 ITR 380 (Pat) and there too the Tribunal had relied upon the case of CIT v. R.M. Amin, [1971] 82 ITR 194 (Guj). This court in the case of CIT v. Vijoy Kumar Budhia, [1975] 100 ITR 380 (Pat) considered the case reported in 82 ITR 194 and held that the Tribunal had wrongly relied upon the principles laid down in that case (i.e., 82 ITR 194). On the legal view, as stated above, I hold that the respective amount in the instant case was rightly included in the " Capital gains" of the respective assessee under Section 46, read with Sections 48 and 49 of the Act and in both the instant tax cases, the Tribunal has taken a wrong view of the law and wrongly held that the Appellate Assistant Commissioner was justified in deleting the respective additions and wrongly relied upon the case of CIT v. R.M. Amin, [1971] 82 ITR 194 (Guj).
25. The questions of law, as stated in paragraphs 2 and 3 above, for the opinion of this court, are squarely covered by the decision in the case of CIT v. Vijoy Kumar Budhia, [1975] 100 ITR 380 (Pat).
26. For the reasons stated above, I answer both the questions in the instant tax cases (as referred to in paragraphs 2 and 3 above) in the affirmative, against the assessee and in favour of the Revenue and hold that, on the facts and circumstances of the case, in Tax Case No. 8 of 1974, Rs. 14,560 was assessable in the hands of the assessee under the head "Capital gains" and I further hold that in Tax Case No. 12 of 1974, on the facts and in the circumstances of that case, Rs. 30,900 was assessable in the hands of the assessee under the head " Capital gains ".
27. Hearing fee is assessed at Rs. 100 only.
Lalit Mohan Sharma, J.
28. I agree.