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Commissioner of Income-tax, Tamil Nadu-i Vs. M.A. Chidambaram - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case No. 1404 of 1977 (Reference No. 973 of 1977)
Judge
Reported in[1984]147ITR180(Mad)
ActsIncome Tax Act, 1922 - Sections 2(17), 45, 46(2) and 256(1)
AppellantCommissioner of Income-tax, Tamil Nadu-i
RespondentM.A. Chidambaram
Appellant AdvocateJ. Jayaraman, Adv.
Respondent AdvocateMaya, Adv.
Excerpt:
.....which exceeded original cost of shares by rs. 13950 - amount was assessed by income tax officer as capital gains - section 46 (2) applicable only in case of distribution of assets of companies in liquidation as contemplated under section 2 (17) of act - section 46 (2) will be applicable only when company in liquidation was company contemplated under section 2 (17) - facts revealed that company under liquidation came under section 2 (17) - held, dividend received from liquidator would be included in income of assessee. - - 46(2) of the act if the condition laid down in that section is satisfied. though this court has remitted the matter to the tribunal, it clearly ruled that s. in that case the supreme court has clearly held that s. 46(2) was enacted both with a view to making..........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. 9. as already stated, we are not concerned with the question as to whether the company in liquidation is a company as defined in s. 2(17) of the act. thus, the question as to whether s. 46(2) can be used as a charging section without reference to s. 45 seems to be concluded by the decision referred to above. though the tribunal purported to follow the decision of the gujarat high court, it has not.....
Judgment:

Ramanujam, J.

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 :

'Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the sum of Rs. 13,590 received in excess of the original cost of the shares by way of dividends from the liquidator of M/s. Kanadukathan Electric Supply Corporation Ltd. could not be included in the hands of the assessee as long-term capital gains ?'

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. On appeal, the AAc relying on the decisions of the Tribunal the case of another assessee by name Smt. C. T. Oppilal Achi in I. T. A. No. 702/Mds/69-70, dated August 28, 1971 and also the decision of the Gujrat High Court in the case of CIT v. R. M. Amin : [1971]82ITR194(Guj) , upheld the assessee's claim that the sum of Rs. 13,590 cannot be brought to charge as capital gains.

4. The revenue took the matter in appeal to the Tribunal, contending that the amount received by the assessee in excess of the original cost by way of dividends should be brought to charge. The Tribunal, however, following its own earlier decision in I. T. A. No. 702/Mds/69-70, dated August 28, 1971, and also following the decision of the Gujrat High Court in CIT v. R. M. Amin : [1971]82ITR194(Guj) , held that the sum of Rs. 13,590 is not liable to be treated as long-term capital gains. Aggrieved by the decision of the Tribunal, the Revenue has obtained this reference on the above question of law.

5. Mr. Jayaraman, the learned counsel for the Revenue, submits that even if the sum of Rs. 13,590 being the dividends received in excess of the original cost of the shares, is not of the Act, as it can be invoked even when there is no transfer of assets involved. In support of his submission that the sum of Rs. 13,590 is assessable and can be brought under s. 46(2) of th e Act, which specifically brings to charge the amounts received by the shareholders under the head Capital gains to the extent the said sum exceeds the original cost of the acquisition of the shares, the learned counsel refers to the decisions of this court in T. M. Rangachari v. CIT : [1976]102ITR50(Mad) , CIT v. M. A. Alagappan : [1977]108ITR1000(Mad) , CIT v. C. T. Oppilal Achi : [1977]109ITR126(Mad) and the decision of the Supreme Court in the case of CIT v. R. M. Amin : [1977]106ITR368(SC) which arose out of the judgment of the Gujarat High Court in CIT v. R. M. Amin : [1971]82ITR194(Guj) , relied on by the Tribunal in this case.

6. In T. M. Rangachari v. CIT : [1976]102ITR50(Mad) , a Division Bench of this court to which one of us was a party had taken the view that s. 46(2) is a charging provision independent of s. 45 and, therefore, even if a particular income cannot be brought to charge under s. 45 of the Act, the same can be brought to charge under s. 46(2) of the Act if the condition laid down in that section is satisfied. The said decision has been referred to with approval and followed by a Division Bench of this court in CIT v. M. A. Alagappan : [1977]108ITR1000(Mad) , and the learned judges have expressed the view that s. 46(2) is an express provision for charging as capital gains in respect of the monies or assets received by a shareholder of a company in liquidation. The same view was taken in CIT v. C. T. Oppilal Achi : [1977]109ITR126(Mad) . It is significant to note that the decision in CIT v. C. T. Oppilal Achi : [1977]109ITR126(Mad) was in respect of the decision rendered by the Tribunal in I. T. A. No. 702/Mds/69-70, dated August 28, 1971, which has been taken as the basis for its decision in this case by the Tribunal. In CIT v. C. T. Oppilal Achi, there was a liquidation of a bank and its shareholders were allotted shares in a private limited company in proportion to the shares held by them in the bank. The ITO was of the view that the assessee-shareholder was chargeable to capital gains tax in respect of the receipt of the shares in the company by reason of s. 46(2) of the I.T. Act, 1961. The assessment was confirmed by the AAC. But the Tribunal held that no charge was created by s. 46(2) and hence there was no justification including in the taxable income of the assessee by way of capital gains any sum referable to the receipt from the liquidator of the bank. This court did not agree with the view of the Tribunal, but held that s. 46(2) itself is a charging section and it will apply only in relation to companies which fall within the scope of the definition of 'company' in s. 2(17) of the I.T. Act, 1961. Since the Tribunal had not given its decision on that question, this court remitted the matter to the Tribunal for consideration of that question. Though this court has remitted the matter to the Tribunal, it clearly ruled that s. 46(2) is a charging section apart from s. 45 and that it will apply to all receipts from the liquidator in the course of the liquidation of the company as dividends towards the shares held by them.

7. In this case the question as to whether the assessee-company is a company as defined in s. 2(17) of the Act does not arise as it has been conceded by the learned counsel for the assessee that it is a company as contemplated by s. 2(17) of the I.T. Act.

8. It is significant to note that the decision of the Supreme Court in CIT v. R. M. Amin : [1977]106ITR368(SC) , was rendered on an appeal against the decision rendered by the Gujarat High Court in CIT v. R. M. Amin : [1971]82ITR194(Guj) 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]82ITR194(Guj) , 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.

9. As already stated, we are not concerned with the question as to whether the company in liquidation is a company as defined in s. 2(17) of the Act. Thus, the question as to whether s. 46(2) can be used as a charging section without reference to s. 45 seems to be concluded by the decision referred to above. Though the Tribunal purported to follow the decision of the Gujarat High Court, it has not referred to s. 46(2) and considered the question of its applicability to the facts of the case. In view the fact that the company, which was in liquidation, is admitted to be a company coming under s. 2(17) of the Act, s. 46(2) is s traightway attracted to the facts of the case. Even as a matter of construction of the statue s. 45 is a general provision, while s. 46(2) is confined to a special situation and being a special provision applicable to a special situation, the applicability of that section cannot be excluded merely because the general section, like s. 45, does not apply.

10. In this view of the matter, we answer the question referred to us in the negative and against the assessee. The assessee will pay the costs of the revenue. Counsel's fee Rs. 500.


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