Where the assets of a company are distributed to its shareholder on its liquidation, such distribution shall not be regarded as a transfer by the company. Therefore, there will be no capital gain to the company.
However, 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 money and the asset so received. 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 section 2(22)(c).
Sale of Assets Received on Liquidation:
As per section 55(2)(b)(iii), if the asset (other than cash) acquired by the shareholder, at the time of liquidation, is subsequently transferred by the shareholder; then for the purpose of computation of capital gain of such transfer, the cost of acquisition of such asset shall be the market value of the asset on the date of distribution. In this case, deemed dividend will not be deducted.
Exampe :
if a person receives some assets from a company in liquidation whose fair market value is Rs.50,000. The assessee held 300 shares which he had purchased for Rs. 125 each. The value of assets distributed included a sum of Rs. 10,000 taxable as dividend. In this case the capital gain shall be :
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