Cost of acquisition in case of transfer of an asset distributed by a company in liquidation

In case of transfer of an asset distributed by a company in liquidation, cost of acquisition of same has to be taken as cost to previous owner for purpose of computing capital gains thereon

RELEVANT PARAGRAPH

8. Section 46(2) provides that when a shareholder receives money or any other asset from a company on its liquidation, then such shareholder shall be charged to capital gains tax. This capital gain is on account of transfer of shares effected by extinguishment of rights in the shares. The section further provides that sales consideration for the purpose of computing capital gains will be money actually received or fair market value of the asset on the date of distribution, as the case may be. The said sales consideration will be as reduced by the amount assessed u/s.2(22)(c) . In our case there is no such amount assessed and therefore, for the sake of brevity, in this order reference to fair market value of the asset on the date of distribution will be presumed to be after such reduction and no further reference will be made to sec.2(22)(c) . Again, for the sake of brevity, ; let us name this transaction, i.e. the transaction of transfer I of shares as transaction A. The transfer of shares in this case f. is the first taxable event and since the assessee has received , an asset other than money on liquidation, capital gains will be computed by deducting the cost of shares from the fair market value of the asset. The shares have been acquired by the assessee himself and therefore, there is no question of adopting any cost to the previous owner. The year of tax ability will be the year in which the distribution of assets has taken place, i.e. the year in which the assessee received the asset. In the present case, the assessee has received the asset In financial year 1990-91 and hence capital gains would be taxed in assessment year 1991-92, This entire transaction A can be presented in arithmetical form by taking a hypothetical example. Let us assume the following :

a) cost of acquisition of shares by the assessee Rs. 100/-

b) fair market value of property received Rs. 150/-

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