Law: Income Tax Act, 1922

Section: 12-B(1), 12B

Income-tax-Company-Winding up-Whether shareholders' rights extinguished-Distribution to shareholders-Amount received by shareholder in excess of cost of acquisition of shares -Whether capital gains-Indian Income-tax Act, 1922, S. 12-B(1). A share in a company is the expression of a proprietary partnership. The shareholder is the proportionate owner of the company but he does not own the company's assets which belong to the company as a separate and independent legal entity. A share represents a bundle of rights. On liquidation, voluntary or compulsory, the holder's ownership over those rights is neither extinguished nor obliterated but only the contents of those rights and the manner of their exercise become altered. The assessee had held in a company 42,200 shares acquired for the sum of Rs. 2,56,939. The company went into voluntary liquidation on September 8, 1951, and by July 11, 1955, the assessee received as dividends the sum of Rs. 2,80,400. During the previous year ending Mardi 31, 1957, relevant to the assess ment year 1957-58, the assessee received a further sum of Rs. 21,100 from the liquidator 'of the company as refund of capital at the rate of 50 np. per share. The question was, whether the assessee having earlier received the entire cost of the shares the sum of Rs. 21,100 could be assessed in its hands as capital gains: Held, (i) that the sum of Rs. 21,100 was not assessable to capital gains, as there was no sale, exchange, relinquishment or transfer of a capital asset on the liquidation of the company ; (ii) that, even assuming that there was a relinquishment of the rights of a shareholder by liquidation, section 12-B of the Income-tax Act, 1922, was not attracted as the relinquishment took place prior to March 31, 1956. JUDGMENT SABYASACHI MUKHARII, J.----The assessee-company held 42,200 shares of the Chemical Maunfacturing Co. of India Ltd. The shares had been purchased by the assessee for a total sum of Rs. 3,56,936. By a special resolution passed by the shareholders in an extraordinary general meeting on the 8th September 1951, the said company, namely, the Chemical Manufacturing Co. of India Ltd., went into voluntary…