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Cost of asset received by shareholder during liquidation

CA.Sachin Bajaj (Chartered Accountant) (138 Points)

23 August 2007

As per sec55(2)(b)(iii), cost of acquisition of an asset received during liquidation of a company in the hands of the shareholder for the purpose of calculating capital gain on the transfer of such asset subsequently shall be taken as the FMV as on the date on which such asset was received by the shareholder from the company.

But then as per sec49(1), the cost of the asset in the hands of shareholder received on liquidation of the company shall be deemed to be the cost to the previous company & i.e. the company which went into liquidation.
Can anybody help me in clarifying that either these sections are contradictory or I missed something???

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8 Replies

Nitesh (Chartered Accountant) (340 Points)
Replied 24 August 2007

buddy if i am not wrong the FMV on the date of distribution will be taken as cost of asset and sale value of your shares.

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CA.Sachin Bajaj (Chartered Accountant) (138 Points)
Replied 24 August 2007

Yes but that is to calculate gain on transfer of shares at the time of receiving assets on liquidation but what I am talking about is the Cost of Aquisition of such asset when such asset is transferred later on.

(Guest)

Intiially the transfer of assets by a company in liquidation is not a transfer in the hands of the company. It is a deemed capital gain in the hands of the shareholder as per Ruby trading company case. FOr computation of capital gain in the hands of the shareholder the value of asset or the money received by the shareholder on the date of distribution is full vlaue consideration.In this case cost of acquistion is value of the shares. In this case company has to pay dividend tax to the extent of accumalated profits. If the share holder subsequently sold the asset which he got on distribution the cost of acquisition is the fmv on the date of transfer. The gain to be taxed here is what he got inexcess of amount already suffered tax(fmv on the date of transfer)and deemed dividend is not deducted from fmv in this case.

CA.Sachin Bajaj (Chartered Accountant) (138 Points)
Replied 24 August 2007

Thats absolutely correct but the point is what to do with sec 49(1) where it is mentioned that the cost of the asset in the hands of shareholder received on liquidation of the company shall be deemed to be the cost to the previous company & i.e. the company which went into liquidation.

CA.Sachin Bajaj (Chartered Accountant) (138 Points)
Replied 25 August 2007

Guys anybody having the answer??????

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ramprasad (Chartered Accountant) (424 Points)
Replied 25 August 2007

but if u refer sec 55(2) it clearly metioned that in case of transfer of asset received on liquidation is fmv on the date of distribution is the cost of acquisition. what i thought ( i may be wrong) if asset is transfered b the company in liquidation to some one other than share holder (like creditors for thier dues.......)

ramprasad (Chartered Accountant) (424 Points)
Replied 25 August 2007

if i remember correctly the section 49(1) says asset received from a company in liquidation the cost of acquistion is cost to the company is not specificaly mentioned applicable for share holders only.......