COMMISSIONER OF INCOME TAX vs. JAYKRISHNA HARIVALLABHDAS

ITR/29/1984HC GujaratGJHC24011704198414 February 1997Author: HONOURABLE MR. JUSTICE R.K.ABICHANDANI,HONOURABLE MR. JUSTICE R.BALIA16 pages
AI SummaryAllowed

What were the facts?

The Commissioner of Income Tax referred a question of law to the High Court of Gujarat concerning the Income Tax Appellate Tribunal's order for assessment year 1977-78. The assessee, Jaykrishna Harivallabhdas, claimed a capital loss of Rs. 27,154/- on shares of two companies, M/s. Indian Bearings Limited and H.K. Sons Private Limited, which had gone into voluntary liquidation. The assessee argued that since nothing was distributed to shareholders, the consideration received was nil, and the loss should be computed under Section 46(2) read with Section 48 of the Income Tax Act, 1961. The Income Tax Officer and CIT(Appeals) rejected this, holding that liquidation does not constitute a transfer giving rise to capital loss, relying on CIT Gujarat vs. R.M. Amin. The Tribunal, however, allowed the assessee's claim, distinguishing R.M. Amin as relating to a foreign company not governed by Section 46(2).

What did the High Court hold?

The High Court held in favour of the assessee, answering the referred question in the affirmative. The Court reasoned that Section 46(2) of the Income Tax Act, 1961, was specifically enacted to deal with capital gains on the distribution of assets by companies in liquidation to their shareholders. While Section 46(1) clarifies that such distribution is not a transfer by the company for the purpose of Section 45, Section 46(2) makes shareholders chargeable to income-tax under the head 'Capital Gains' on money or assets received, reduced by certain amounts, and this sum is deemed the full value of consideration for Section 48. The Court emphasized that even if the net result of this computation under Section 48 leads to a capital loss (as in this case where consideration was nil), such a loss can be set off or carried forward under Sections 71 and 74. The Tribunal's distinction of the R.M. Amin case, which dealt with a foreign company, was found to be appropriate. The operative direction was to answer the question in favour of the assessee.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that the assessee was entitled to claim capital loss of Rs. 27,154/- under the provisions of Section 46(2) of the Income-tax Act, 1961? Assessee's Contention: The assessee contended that upon the voluntary liquidation of the companies and receiving nil consideration, the capital loss should be computed under Section 46(2) read with Section 48 of the Income Tax Act, 1961. The Tribunal's finding that Section 46(2) applies to Indian companies in liquidation and that the loss is allowable was relied upon. Revenue's Contention: The revenue contended that liquidation of a company does not constitute a 'transfer' of assets, and therefore, no capital loss can arise or be computed under the head 'Capital Gains'. They relied on the Supreme Court decision in C.I.T. Gujarat vs. R.M. Amin, which held that distribution of assets on liquidation of a foreign company was not a transfer. The revenue argued that this principle applies even to Indian companies where specific provisions like Section 46(2) are not applicable or interpreted differently.

Which sections of the Income-tax Act were involved?

Section 46,Section 48,Section 45,Section 71,Section 74

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE No 29 of 1984

For Approval and Signature:

Hon'ble MR.JUSTICE R.K.ABICHANDANI and MR.JUSTICE R.BALIA. ============================================================ 1. Whether Reporters of Local Papers may be allowed to see the judgements?

2.

To be referred to the Reporter or not?

3.

Whether Their Lordships wish to see the fair copy of the judgement?

4.

Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder?

5.

Whether it is to be circulated to the Civil Judge?

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 46

All 37 judgments and leading authorities on Section 46 →

Recent GST High Court judgments

Search GST case law →