K.K.DESAI, J. -
(1.) IN this petition under Art. 226 of the Constitution the petitioner-company has challenged the legality and correctness of the order, dated March 30, 1967, whereby the first respondent, ITO, in computing the income-tax liability computed the capital gains made by the petitioner-company for the asst. yr. 1962-63 at Rs. 47,97,735. The relevant facts are as follows :
(2.) THE assessee-company, which is registered in the United Kingdom, held a substantial share capital of an Indian company of the name of Cable and Wireless Ltd. and carried on the business of this company as its subsidiary company. This Indian company was taken over by the Government of India w.e.f. January 1, 1947, and went into voluntary liquidation from May 11, 1949. Between September, 1949, and September, 1961, this Indian company in liquidation paid five different amounts aggregating to Rs. 1,10,26,921 to the assessee-company. Out of these, two payments were made out of accumulated profits and admittedly accounted for as dividend paid over to the assessee-company. Three other payments, being respectively of Rs. 53,85,400, Rs. 25,07,001 and Rs. 2,39,934, aggregating to Rs. 81,32,335 were distributed respectively on September 12, 1949, November 16, 1953, and September 18, 1961, to the assessee-company as these payments were made to the assessee- company because under the Companies Act contributories have a right to participate in the distribution of the assets of a company in liquidation. While submitting its return for the asst. yr. 1962-63, the assessee-company pointed out the fact of the receipt of the above last sum of Rs. 2,39,934 on the footing that in its opinion no capital gains arose on this last distribution.
While assessing the assessee-company under the impugned order dated March 30, 1967, the first respondent held that for each of the above three amounts of moneys received by the assessee- company respectively on September 12, 1949, November 16, 1953, and September 18, 1961, aggregating in all to Rs. 81,32,335, the taxable event for computation of capital gains arose in the year of assessment 1962-63 because the final distribution of moneys/assets was made by financial payment of Rs. 2,39,934 in the "previous year" on September 18, 1961. He, therefore, held that the assessee-company was liable to pay income-tax for the above assessment year on the footing that the whole of the aggregate sum of Rs. 81,32,335 less the cost of purchase of shares was the capital gains made by the assessee-company in the above assessment year. In arriving at that finding the first respondent referred to the provisions of ss. 46(2) and 48 of the IT Act. He held that the assessee-company's right to receive the assets arose as a consequence of its being a shareholder of the company in liquidation. According to him the right to distribution "cannot be said to have come to an end on interm distributions by the liquidator . . . . it is clear that the moneys received from time to time on distribution by a shareholder can acquire the character of capital gains only on the final distribution, . . . ." In his opinion, "the full value of the consideration" received by the assessee- company by distribution of moneys by the company in liquidation could only be calculated upon the final distribution declared in liquidation. He rejected the contention made on behalf of the assessee-company that tax on capital gains having been levied (on distribution made in liquidation) under s. 46(2) long after the company had gone into liquidation was not applicable to the assessee-company. He also rejected the contention that the liability created under the section could not be applied to distributions which were made to the assessee-company in 1949 and 1953. He rejected the contention that tax on the capital gains made on distribution of money in liquidation by a shareholder should be on the footing that the particular distribution was capital gain made in the year of distribution and that it was not permissible for the Revenue to accumulate and aggregate all distributions differently made in different years in the last year of distribution. He rejected the contention that at the highest the Revenue could consider the last distribution and payment of Rs. 2,39,934 as capital gains made by the assessee- company in the year of assessment.
The finding made by the first respondent are challenged in this petition on various grounds, including the ground that if the construction and effect of s. 46 of the IT Act was in accordance with the findings made by the first respondent, the section was unconstitutional and contravened the petitioner's fundamental rights guaranteed under Art. 14 of the Constitution. The further submission was that under the scheme of s. 46(2), r/w other relevant sectiaons of the IT Act the relevant year for assessing and taxing capital gains made by a shareholder on receiving moneys from a company in liquidation was the "previous year" in which the moneys are received and that, therefore, there was in law no basis for the contrary findings made by the first respondent.
(3.) ON behalf of the respondent, Mr. Joshi contended that the assessee-company had instituted a Departmental appeal and was accordingly not entitled to file this petition. By relying upon the relevant provisions in the IT Act and the Companies Act he justified the findings made by the first respondent. In his submission the petitioner-company was not entitled to the relief of setting aside or quashing of the impugned order.
In connection with these rival contentions it is necessary to refer to the provisions in ss. 45, 46 and 48 of the IT Act which run as follows :
"45. Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in ss.53, 54 and 54B, be chargeable to income-tax under the head `Capital gains', and shall be deemed to be the income of the previous year in which the transfer took place. 46. (1) Notwithstanding anything contained in s. 45, 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 s. 45. (2) Where a shareholder on the liquidation of a company receives any money or other assets from the company, he shall be chargeable to income-tax under the head `Capital gains', in respect of the money so received or the market value of the other assets on the date of distribution, as reduced by the amount assessed as dividend within the meaning of sub-cl. (c) of cl. (22) of s. 2 and the sum so arrived at shall be deemed to be the full value of the consideration for the purposes of s. 48. 48. The income chargeable under the head `Capital gains' shall be computed by deducting from the full value of the consideration received or accruing as a result of the transfer of the capital asset the following amounts, namely :-- (i) expenditure incurred wholly and exclusively in connection with such transfer ; (ii) the cost of acquisition of the capital asset and the cost of any improvement thereto."