Law:

Section:

Section 45 of the Income-tax Act, 1961 [Corresponding to section 12B of the Indian Income-tax Act, 1922] - Capital gains - Chargeable as - Whether though expression "any distribution of capital assets" as occurring in third proviso to section 12B(1) of 1922 Act governs not only partition of an HUF but also dissolution of a firm and other AOP or liquidation of a company, but same does not cover case of a company where there is no distribution of capital asset as such but only a distribution among its shareholders of amount of sale proceeds of a capital asset realised in liquidation proceedings by liquidator - Held, yes - Assessee-company went into voluntary liquidation and its capital assets were sold by liquidator - Sale proceeds realised were distributed among shareholders - Whether profits realised by sale of plant, machinery and buildings by assessee was exempt from capital gains tax under third proviso to section 12B(1) - Held, no - Whether profit realised by sale of that portion of buildings which was used for assessee's business was exempt from capital gains tax under second proviso to section 12B(1) - Held, no FACTS The capital assets of the assessee-company in liquidation were sold by the liquidator. The total sum realized by the sales was Rs. 2,10,000 made up of Rs. 50,000, the value of the buildings, Rs. 1,60,000 the value of the stores, machinery, plant, etc. The total amount of the sale proceeds realized was distributed between the shareholders. The ITO held that out of Rs. 1,60,000, the sum of Rs. 1,47,000 was assessable to tax as capital gains. He apportioned the sale proceeds of the building between the portion occupied by outsiders, unconnected with the business and the portion occupied by the assessee for the purpose of his business. In respect of the latter portion, he estimated the capital gains to be Rs. 23,171. Thus on a total sum of Rs. 1,70,363 which was treated as capital gains, the tax was imposed under section 12-B(1) of the 1922 Act. The assessee claimed in the first place that the whole of it was exempt from income-tax under the third proviso to section 12B(1) of the 1922 Act and, in the alternative, the portion allocated for the…

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