25/02/2019
Capital gain on distribution of assets by companies in liquidation [Sec. 46] :- The provisions of section 46 are given below :-
TAX TREATMENT IN THE HANDS OF THE COMPANY [SEC 46(1)] :- Section 46(1) is applicable if the following three conditions are satisfieda.
a. assets are distributed by a company ;
b. the assets are distributed at the time of liquidation ; and
c. the assets are distributed to the shareholders.
If all the three conditions are satisfied, there is no “transfer" in such distribution and capital gain is not chargeable in the hands of the company.
TAX TREATMENT IN THE HANDS OF THE SHAREHOLDERS [SEC 46(2)] :- When a shareholder receives money or other assets at the time of liquidation of the company (in which he is a shareholder), section 46(2) is applicable. Capital gain under section 46(2) shall be determined as follows.
1. Find out the money received and the market value of other assets on the date of distribution.
2. Find out the amount treated as dividend under section 2(22)(c) [any distribution by a company at the time of liquidation is treated as dividend to the extent of accumulated profit of the company and the company will have to pay dividend distribution tax, dividend will be exempt in the hands of shareholders].
3. The excess of (1) over (2) is treated as full value of consideration received on transfer of shares.
4. From the consideration, deduct cost of acquisition/ indexed cost of acquisition, expenditure on sale, etc., to find out capital gain.
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