COMMISSIONER OF INCOME TAX Vs. CHIDAMBARAM M A

JUDGEMENT

(1.) THE following question has been referred to us at the instance of the Revenue under s. 256(1) of the I.T. Act, 1961 :

(2.) THE assessee was holding 201 shares of Rs. 500 each in Kanadukathan Electric Supply Corporation, which went into liquidation some years back. THE assessee was received dividend from the liquidator of the company during the last few years prior to the assessment years 1969-70. In the year of account relevant for the assessment year 1969-70, the assessee received by way of the third and fourth dividends a total sum of Rs. 33,165 which, along with the other dividends received previously exceeded the original cost of the shares by Rs. 13,590. This was brought as "capital gains" by the ITO.

(3.) IT is significant to note that the decision of the Supreme Court in CIT v. R. M. Amin [1977] 106 ITR 368, was rendered on an appeal against the decision rendered by the Gujarat High Court in CIT v. R. M. Amin [1971] 82 ITR 194 which has been relied on by the Tribunal in this case. In that case the Supreme court has clearly held that s. 46(2) was enacted both with a view to making shareholders liable for payment of tax on capital gains as well as to prescribed the mode of calculating the capital gains to the shareholders on the distribution of assets by a company in liquidation and that since the provisions of s. 46(2) applied only to the distribution of assets by such companies in liquidation as were covered by the definition of the word "company" in s. 2(17), capital gains tax was not leviable when companies other than those which fell within the definition in s. 2(17) distributed assets on liquidation to their shareholders. IT is significant to note that even the Gujarat High Court in CIT v. R. M. Amin [1971] 82 ITR 194, had held that s. 46(2) is a charging section and that if the conditions laid down in that section applied it can be invoked in respect of the distribution of assets by companies in liquidation. But held that the company in question was not a company as contemplated in s. 2(17) of the Act. With this finding it held against the Revenue. The supreme court affirmed the decision of the Gujarat High Court and held that s. 46(2), as a charging section can be applied for the amount received from the official liquidator; but the company in liquidation should be a company as contemplated in s. 2(17) of the Act.