A shareholder is chargeable to income-tax on capital gains received on the liquidation of a company under Section 46(2) of the Income-tax Act, 1961.

Ashwini Kumar Sinha, J.

1. Both the tax cases are references u/s. 256(1) of the Income-tax Act, 1961 (hereinafter called " the Act "), made by the Income-tax Appellate Tribunal, Patna Bench " A ", Patna. Identical question of law is involved in both these tax cases and hence they are disposed of by a common judgment.

2. In Tax Case No. 8 of 1974, the question of law referred for the opinion of this court is as below :

"Whether, on the facts and in the circumstances of the case, the amount of Rs. 14,560 was assessable in the hands of the assessee under the head Capital gains?"

3. In Tax Case No. 12 of 1974, the question of law referred for the opinion of this court is as below :

" Whether, on the facts and in the circumstances of the case, the amount of Rs. 30,900 was assessable in the hands of the assessee under the head Capital gains ? "

Tax Case No. 8 of 1974 :

4 The assessment year in question is 1964-65. The original assessment for this assessment year was made determining a capital gain of Rs. 1,640 on properties received from M/s. Ganpati Properties (P) Ltd, The assessee was one of the shareholders of M/s. Ganpati Properties Ltd. On voluntary liquidation of the company, the assessee received 5/102 shares in the undivided properties and a piece of land measuring about 3 acres besides a building. The liquidator had valued that property at Rs. 1,53,000 and the share of the assessee in the same came to Rs. 7,500. The Income-tax Officer found that the valuation of the assets as made by the liquidator was underrated and inadequate. The Income-tax Officer was of the view that the value given to these properties by the liquidator was low and considering the rental income from these properties, he estimated the value of the land at Rs. 3,86,000 and the value of the building at Rs. 63,200. On this basis, the value of the entire property was taken to be Rs. 4,50,000. The Income-tax Officer was of the view that the liquidator had grossly underestimated the value and held that, in the instant case, the provisions of Section 52(1) were applicable. The Income-tax Officer worked out the capital gain on the whole property at Rs. 2,77,000 and also worked out the assessees share by taking 5/102 of the above capital gain. Thus an amount of Rs. 14,560 was taken as capital gain by the Income-tax Officer.

5. The assessee went in appeal and the Appellate Assistant Commissioner held that the approval required to be taken under Sec. 52(2) of the Act had not been taken in this case while enhancing the value of the capital gain and instead, only approval under Sec. 52(1) had been taken from the Inspecting Assistant Commissioner. The Appellate Assistant Commissioner, however, following the decision in an earlier case of a shareholder, vacated the reassessment order and directed that the value of the capital gain be taken at the same figure which was taken in the original assessment.

6. The Department went before the Appellate Tribunal and the Tribunal following the decision in the case of CIT V/s. R.M. Amin, [1971] 82 ITR 194 (Guj), held that there was no transfer of capital asset in this case and the Tribunal, therefore, held that the Appellate Assistant Commissioner rightly set aside the higher valuation taken in the reassessment for the computation of capital gain. The departmental appeal was dismissed by the Tribunal.

7. The Department thereafter filed an application before the Tribunal under Sec.256(1) of the Act and thus the matter has come to this court. Tax Case No. 12 of 1974 :

8. In this case, the assessee was one of the shareholders of M/s Ganpati Properties (P) Ltd. On the liquidation of the company, the assessee received a piece of land on which the premises of Shri Vishnu Talkies, Kanchi, stood. According to the liquidator, the value of the land of 15 kathas carne to Rs. 45,000. The Income-tax Officer considered this to be an undervaluation and estimated the cost of land at Rs. 5,000 per katha. The Income-tax Officer was of