- No capital gain to company on distribution of assets to shareholders on liquidation u/s 46(1) provided the
distribution of assets in specie (i.e. in the same form).
- Where a shareholder on the liquidation of a company, receives any money or other asset from the company in lieu of the shares held by him, such a shareholder shall be chargeable to income tax under the head Capital gains in respect of the excess money and the assets so received over the cost of the shares held by him.In this case, the consideration price for capital gain purposes shall be money received and/or the market value of the other assets on the date of distribution minus deemed dividend within the meaning of Sec.2(22)(c). Any distribution 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 capitalized or not.
- Accumulated profits for a company in liquidation includes all profits of the company up-to the date of liquidation. Accumulated profits should include the credit balance of profit and loss account, general reserves, investment allowance, capitalized profits and profits of the year up-to the date of distribution/liquidation.
- However, provisions and reserves meant for specific liability, to the extent of the liability shall not be included.
Provision for income tax, provision for dividend, reserve for depreciation do not form part of the accumulated
• Securities premium is not accumulated profits.
• It may consist of exempted incomes, like agricultural income.
• It will indude current profits and all profits of the company till the date of liquidation, subject to the
exception provided therein.