T.R. Balasubramanium Vs ACIT (Madras High Court)
Madras HC Clarifies Cost of Acquisition on Company Liquidation, Upholding FMV at Distribution Date: The Madras High Court, in the case of T.R. Balasubramanium vs. ACIT, has provided a significant clarification on the computation of capital gains when an asset is distributed to a shareholder upon company liquidation and subsequently sold. The Court held that the Fair Market Value (FMV) of the asset on the date of distribution should be considered the cost of acquisition for the shareholder for computing capital gains on the subsequent sale, especially when the capital gains arising from the deemed transfer of shares on liquidation have already been offered for tax.
All these appeals were filed for AY 1991-92. Appellants were shareholders in the company. Earlier all three share holders were successful before CIT (A). Appeal were filed before tribunal. The sole legal issues that arises relates to the computation of cost of acquisition under the provisions of the Income Tax Act, 1961, an asset distributed on liquidation of the Company, the asset being the immovable property at 552, Mount Road, Madras that belonged to the Company. The appellants had purchased 120 shares of the Company at the rate of Rs.21,000/- per share in the Company. The Company went into voluntary liquidation on 21.05.1990. The asset had been valued at a sum of Rs.1,36,51,000/- and the value thereof was distributed to the Appellants in proportion to their share-holding, being 120 out of 500 shares amounting to Rs.32,76,240/- or Rs.27,302/- per share.
