Income-tax Act,1961
Act No : 43
Section :
Capital gains on distribution of assets by companies in liquidation
45. Capital gains 1 2 [(1)] Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 3[4[ * * * ] 54, 54B, 5[ * * * ] 6[7 [54D, 8[54E, 54F 9[, 54G and 54H]]]]], be chargeable to income-tax under the head "Capital gains", and shall be deemed to be the income of the previous year in which the transfer took place. 10[(2) Notwithstanding anything contained in sub-section (1), the profits or gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by him as, stock-in- trade of a business carried on by him shall be chargeable to income- tax as his income of the previous year in which such stock-in-trade is sold or otherwise transferred by him and, for the purposes of section 48, the fair market value of the asset on the date of such conversion or treatment shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset.] 11 (3) The profits or gains arising from the transfer of a capital asset by a person to a firm or other association of persons or body of individuals (not being a company or a co-operative society) in which he is or becomes a partner or member, by way of capital contribution or otherwise, shall be chargeable to tax as his income of the previous year in which such transfer takes place and, for the purposes of section 48, the amount recorded in the books of account of the firm, association or body as the value of the capital asset shall be deemed to be the full value of the consideration received or accruing as a result of the transfer of the capital asset. (4) The profits or gains arising from the transfer of a capital asset by way of distribution of capital assets on the dissolution of a firm or other association of persons or body of individuals (not being a company or a co-operative society) or otherwise, shall be chargeable to tax as the income of the firm, association or body, of the previous year in which the -------------------------------------------------------------------- 2 Inserted by the Finance Act, 1964, w.e.f. 1-4-1964. 3 Substituted for "53, 54, 54B and 54C" by the Finance Act, 1973, w.e.f. 1-4-1974. Earlier, it was substituted for "53, 54 and 54B" by the Finance Act, 1972, w.e.f. 1-4-1973 which was substituted for "53 and 54" by the Finance Act, 1970, w.e.f. 1-4-1970. 4 The figure "53," omitted by the Finance Act, 1992, w.e.f. 1-4- 1993. 5 The figure "54C" omitted by the Finance Act, 1976, w.e.f. 1-4- 1976. 6 Substituted for "and 54D" by the Finance (No. 2) Act, 1977, w.e.f. 1-4-1978. 7 Substituted for "54D and 54E" by the Finance Act, 1982, w.e.f. 1- 4-1983. 8 Substituted for "54E and 54F" by the Finance Act, 1987, w.e.f. 1- 4-1988. 9 Substituted for "and 54G" by the Finance (No. 2 Act), 1991, w.e.f. 1-4-1991. 10 Inserted by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1-4- 1985. It was originally inserted by the Finance Act, 1964, w.e.f. 1-4-1964 and omitted by the Finance Act, 1966, w.e.f. 1-4-1966. 11 Inserted by the Finance Act, 1987, w.e.f. 1-4-1988. Sub-sections (3) and (4) were originally inserted by the Finance Act, 1964, w.e.f. 1-4-1964 and omitted by the Finance Act, 1966, w.e.f. 1-4-1966. ------------------------------------------------------------------------ 1.277 said transfer takes place and, for the purposes of section 48, the fair market value of the asset on the date of such transfer shall be deemed to be the full value of the consideration received or accruing as a result of the transfer.] 1[(5) Notwithstanding anything contained in sub-section (1), where the capital gain arises from the transfer of a capital asset, being a transfer by way of compulsory acquisition under any law, or a transfer the consideration for which was determined or approved by the Central Government or the Reserve Bank of India, and the compensation or the consideration for such transfer is enhanced or further enhanced by any court, tribunal or other authority, the capital gain shall be dealt with in the following manner, namely:- (a) the capital gain computed with reference to the compensation awarded in the first instance or, as the case may be, the consideration determined or approved in the first instance by the Central Government or the Reserve Bank of India shall be chargeable as income under the head "Capital gains of the previous year 2[in which such compensation or part thereof, or such consideration or part thereof, was first received]; and (b) the amount by which the compensation or consideration is enhanced or further enhanced by the court, tribunal or other authority shall be deemed to be income chargeable under the head "Capital gains" of the previous year in which such amount is received by the assessee. Explanation.-For the purposes of this sub-section,- (i) in relation to the amount referred to in clause (b), the cost of acquisition and the cost of improvement shall be taken to be nil; (ii) the provisions of this sub-section shall apply also in a case where the transfer took place prior to the 1st day of April, 1988; (iii) where by reason of the death of the person who made the transfer, or for any other reason, the enhanced compensation or consideration is received by any other person, the amount referred to in clause (b) shall be deemed to be the income, chargeable to tax under the head "Capital gains", of such other person.] 3[(6) Notwithstanding anything contained in sub-section (1), the difference between the repurchase price of the units referred to in subsection (2) of section 80CCB and the capital value of such units shall be deemed to be the capital gains arising to the assessee in the previous year in which such repurchase takes place or the plan referred to in that section is terminated and shall be taxed accordingly. Explanation.-For the purposes of this sub-section, "capital value of such units" means any amount invested by the assessee in the units referred to in sub-section (2) of section 8OCCB.] ----------------------------------------------------------------------- 1 Inserted by the Finance Act, 1987, w.e.f. 1-4-1988. 2 Substituted for 'in which the transfer took place" by the Finance (No. 2) Act, 1991, w.r.e.f. 1-4-1988. 3 Inserted by the Finance Act, 1990, w.e.f. 1-4-1991. ------------------------------------------------------------------------- 1.278 DEPATMENTAL VIEW 1. For the purposes of section 54E the date of transfer in cases where the capital assets are converted into stock-in-trade, will be the date on which the capital assets are converted by the assessee into stock-in trade and not the date on which such stock-in-trade is sold or otherwise transferred. [Circular No. 560, dated 18th May,1990] 2. Even in all those cases where a business is converted into a limited company the question of charging capital gains as well as gift-tax wherever provisions of the relevant Acts are found to be applicable, should also be considered. [Circular No. 23D of 1965]. 3. Exchange of gold ornaments for gold bonds would not be regarded as transfer of capital assets.[Letter No. 34/11/65, dated 15th January, 1966] 46. 46. Capital gains on distribution of assets by companies in liquidation (1) Notwithstanding anything contained in section 45, where the assets of a company are distributed to its shareholders on its liquidation, such distribution shall not be regarded as a transfer by the company for the purposes of section 45. (2) Where a shareholder on the liquidation of a company receives any money or other assets from the company, he shall be chargeable to income-tax under the head "Capital gains", in respect of the money so received or the market value of the other assets on the date of distribution, as reduced by the amount assessed as dividend within the meaning of sub-clause (c) of clause (22) of section 2 and the sum so arrived at shall be deemed to be the full value of the consideration for the purposes of section 48.
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