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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI MAHAVIR SINGHAND SHRI MANOJ KUMAR AGGARWAL
O R D E R
PER MAHAVIR SINGH, VICE PRESIDENT:
This appeal by the Revenue is arising out of the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre in Order No.ITBA/NFAC/S/250/2023-24/1061041943(1) dated 16.02.2024. The assessment was framed by the Assistant Commissioner of Income-tax, Non-Corporate Circle 3, Chennai for the assessment year 2014-15 u/s. 143(3) of the Income Tax Act, 1961 (hereinafter the ‘Act’) vide order dated 30.12.2016.
2. The first issue in this appeal of Revenue is against the order of CIT(A) treating the sale of land at Tiruvottiyur High Road as Long Term Capital Gain as against assessed by AO as Short Term Capital Gain. For this, Revenue has raised the following grounds:- 1) The CIT(A) has erred on the facts of the case in treating the capital gains on sale of land at Tiruvottiyur High Road as Long term Capital gain instead of Short Term Capital Gain without appreciating that : a) There are effectively two transactions involved. The first transaction relates to the assessee in the capacity of share holder receiving immovable property on liquidation of the company for extinguishment of his share holding rights and the second transaction is sale of the said immovable e property acquired by the assessee share holder on liquidation of the company to outside third party. b) The first transaction wherein transfer of shares in the form of extinguishment is involved, the same is taxable as per the provisions of section 46(2). The second transaction relates to sale of the said property acquired on extinguishment of shares on liquidation of the company to outside third party. In respect of this second transaction, the capital gains are clearly short term in nature since the said immovable property was acquired in the preceding year and therefore the period of holding is less than three years.
Brief facts are that the assessee was shareholder in the company Carbon Industries Pvt. Ltd., and this company went into liquidation and assets were distributed its shareholders. The company owned land at Tiruvottiyur which was transferred to the shareholders during financial year 2012-13 itself by a release deed dated 10.12.2012. The AO during the course of assessment proceedings noted that the assessee in view of the provisions of 46(2) of the Act sought long term capital gain for this transfer in his hand in assessment year 2013-14. But noted that the assessee received this property by way of release deed dated 10.12.2012 i.e., in financial year 2012-13 but sold this land to third parties on several dates i.e., falling from 25.04.2013 to 02.06.2013. The assessee claimed this land as long term capital asset but the AO treated the same as short term capital asset. The AO by going through the provisions of section 2(47) of the Act noted that the property received by assessee on liquidation of company is transferred within the provisions of section 2(47) of the Act and the provisions of section 46(2) of the Act. The AO treated this holding period by the assessee from 10.12.2012 i.e., the date of release deed by the company to the assessee and sold these lands on several dates starting from 25.04.2013 to 06.08.2013. The AO treated this land as short term capital gain because it is sold within one year. Aggrieved, assessee preferred appeal before CIT(A).
The CIT(A) after considering the submissions of the assessee held that the assets i.e., land at Tiruvottiyur received on liquidation of company and assessee held the shares in the company and hence, the period of computation of holding the asset is to be considered from the date of acquisition of shares of the company.
The CIT(A) considered Explanation 1(a) to Section 2(42A) of the Act and finally held that the assets held by assessee is long term capital asset and is to be charged under the head ‘long term capital gains’ by observing in para 5.2 as under:- 5.2 I have considered the assessment order, submissions of the appellant and material on record. The Explanation 1(a) to section 2(42A) of the Act is as under –
[Explanation 1].-(i) In determining the period for which any capital asset is held by the assessee –
(a) in the case of a share held in a company in liquidation, there shall be excluded the period subsequent to the date on which the company goes into liquidation ;
It is apparent from the above explanation that the period of capital asset held by the appellant is the period of share held by him in the company in liquidation excluding the period subsequent to the date on which the company went into liquidation which has to be considered for working out the Capital Gains in the hands of the appellant as on the date of distribution of asset for the purpose of section 46 of the Act. However, on the date of receiving of land in lieu of shares held in the company liquidation cannot be treated as transfer. Being the shareholder, the, appellant received his share in the form of capital asset on liquidation of the company and on its receipt, the appellant has also paid tax u/s 46(2) of the Act. As per the provisions of section 46(1), where the assets of a company are distributed to its shareholders on its liquidation, such distribution shall not be regarded as a transfer by the company for the purposes of section 45. In a situation when the land received by the appellant was not even a transfer in the hands of the company in liquidation, the land received by the appellant would apparently be a continuation of share in the company in the form of land till its further transfer. Therefore, till the date of further transfer, the period of holding by the company in liquidation has also to be considered. Considering the facts and circumstances of the case in totality, I am of the considered opinion that the income earned on sale of Thiruvottiyur is required to be Aggrieved, now Revenue is in appeal before us.
We have heard rival contentions and gone through facts and circumstances of the case. We noted that the assessee was holding 368 equity shares in the Carbon Industries Pvt. Ltd., which got liquidated. The company was owning lands at Thiruvottiyur Main Raod, Tondiarpet, Chennai. On liquidation of this company, the assessee by way of release deed dated 10.12.2012 received property i.e., lands at Thiruvottiyur High Road. Admittedly, the assessee i.e., 360 equity shares were held by assessee for last so many years. The assessee along with other shareholders sold his share of property at Thiruvottiyur High Road and received sale consideration on various dates falling during the period 25.04.2013 to 06.08.2013. Before us, the ld.counsel for the assessee argued that the Explanation 1 to Section 2(42A) of the Act clearly explains that in the case of assets acquired in the distribution of assets of the company on account of liquidation, the period for which the company is holding the property must be included to determine whether the asset is a short term capital asset or long term capital asset. Admitted position is that the property was held by the company for 36 months and therefore, it was claimed as long term capital asset. The ld.counsel for the assessee before us filed copy of provisions of section 2(42A) of the Act and drew our attention to the following Explanation 1:- Section 2(42A) [Explanation 1] – (i) In determining the period for which any capital asset is held by the assessee – ……… …….. (b) in the case of a capital asset which becomes the property of the assessee in the circumstances mentioned in 1 [sub-section (1)] of section 49, there shall be included the period for which the asset was held by the previous owner referred to in the said section; We are of the view that the provisions of section 2(42A), Explanation 1 is very clear which explains that when a person received property consequent to liquidation of the company, the period of holding of asset has to be taken from the date of previous owner i.e., company held it. We agree with the contention of the assessee as the Explanation to Section 2(42A) of the Act is very clear and hence, we confirm the order of CIT(A). This issue of Revenue’s appeal is dismissed.
The next issue in this appeal of Revenue is as regards to the order of CIT(A) holding that the provisions of Section 50C of the Act Seevaram. For this Revenue has raised the following Ground No. 1(ii):- ii) The CIT(A) has erred on the facts of the case in non-applicability of provision u/s 50C of the Act on the sale of land situated at Seevaram without appreciating that the provisions of section 46(2) itself provide that the capital gain has to be computed by adopting the market value of the asset received by shareholder on liquidation of company and therefore the action of the AO adopting the market value as per stamp duty valuation cannot be faulted.
This issue is arising from the facts that on liquidation, the assessee received one property at Seevaram and it was received by assessee through release deed dated 10.05.2013. The assessee has disclosed this as long term asset and declared as long term capital gain u/s.46(2) of the Act and also claimed deduction u/s.54F of the Act. The AO during the course of assessment proceedings noticed from perusal of release deed dated 10.05.2013 that the value taken by the assessee is Rs.10,00,00,000/- as against the guideline value of the entire property at Rs.29,46,83,400/-. The assessee claimed that he has not received any consideration pursuant to liquidation and there is no transfer and hence, there cannot be any application of provisions of section 50C of the Act for the present case. The assessee claimed that the assessee has received land upon liquidation of his company and once liquidation of company happens and consequent devolution of asset on the parties, it cannot be considered as transfer. But the AO was of the view that when the assets of the company are distributed on liquidation amongst its shareholders on extinguishment of rights in shares, transfer happens. The AO noted the provisions of section 46 of the Act, which does not say when the assets of the company are distributed amongst its shareholders, no transfer happen. Hence, the AO treated the same as transfer and referred the matter u/s.50C of the Act and taken the stamp duty valuation of the shares i.e., guideline value and computed long term capital gain at Rs.1,84,26,623/- by working out as under:- Guideline value = Rs.29,46,83,400/- Assessee owned 368 shares out of 5354 Share of the assessee = (29,46,83,400 x 368/5354) = Rs.2,02,54,668/- Less : Stamp Duty and Registration Charges = Rs. 18,28,045/- Long Term Capital Gain = Rs.1,84,26,623/- Aggrieved, assessee preferred appeal before the CIT(A).
The CIT(A) after considering the submissions of the assessee and considering the provisions of section 50C of the Act, noted that the assessee has not transferred any capital asset rather the assessee has received asset of a company on distribution of its liquidation in the form of land at Seevaram. The CIT(A) finally held in para 6.2 as under:-
6.2 I have considered the assessment order, Submissions of the appellant and material on record. The provisions of section 50C of the Act are as under - 50C. (1) Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being land or building or both, is less than the value adopted or assessed [or assessable] by any authority of a State Government (hereafter in this section referred to as the "stamp valuation authority") for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed [or assessable] shall, for the purposes of section 48, be deemed to be the full value of the consideration received or accruing as a result of such transfer
A look at the provisions of section 50C of the Act shows that the same applies to a consideration received or accruing as a result of the transfer by an assessee of a capital asset. In the present case, the appellant has not received any consideration as a result of the transfer by him ie. the appellant has not transferred any capital asset. Rather, the appellant has received an assets of a company are distributed to its shareholders on its liquidation in the form of land at Seevaram which is not be a transfer by the company for the purposes of section 45 as per the provisions of section 46(1) of the Act. Therefore, I am of the considered opinion that the provisions of section 50C of the Act are not applicable in the case of the appellant for the Seevaram land received on distribution of asset on liquidation of company. Therefore, the issue is decided in favour of the appellant. According ground nos. 1(ii) and 1(iii) are allowed. Aggrieved, Revenue came in appeal before the Tribunal.
We have heard rival contentions and gone through facts and circumstances of the case. We noted that admittedly, the assessee received land at Seevaram through a release deed dated 10.05.2013 and this is outcome of liquation of assessee’s company namely Carbon Industries Pvt. Ltd. Once the assessee receives a capital on liquidation, the same cannot result into transfer of any capital asset
In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in the open court on 20th September, 2024 at Chennai.