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Reference to sec 46(2) of income tax regarding capital gains

DEVYANI SIDDHAPURA (CA Final Student) (73 Points)

03 March 2016

When a company is liquidated, transfer of assets to its shareholders will not be brought to tax for co. under sec 46(1) because co.'s existence is no more. And instead shareholder is brought to tax u/s 46(2). But further when shareholders sell it to third person, will it be liable to tax if the asset received from co. was personal movable property like car or furniture?

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Kuldipsinh Jadeja (Job) (357 Points)
Replied 07 March 2016

As per section 2(22)(c) of Income Tax Act, when any distribution is made to the shareholders of a company on its liquidation, to the extent to which the distribution is attributable to the accumulated profits of the company immediately before its liquidation, whether capitalised or not would be treated as deemed dividend and company would be liable to pay DDT u/s 115O of th Act. When further shareholder transfers such asset than they will be liable to capital gain provided asset is a capital asset and such transfer is a taxable transfer under Income Tax Act. So if shareholder receives asset like car/furniture of personal nature not falling under the definition of capital asset than there would be no question of capital gain. Hope you got it.

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