Section 2(17)

Section 2(17) — the law in short

What the courts have decided on section 2(17), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• CIT, Gujarat-II v R.M. Amin (Supreme Court) — a distribution on liquidation is not a transfer within s.2(47), and s.46(2) is itself the charging provision without which no capital gain could be charged at all Supreme CourtHelps taxpayerSuperseded by amendment
  Is a receipt by a shareholder on the winding up of a company a "transfer" that can be charged under section 45 on its own, or does the charge depend entirely on section 46(2)?
  It depends entirely on s.46(2), and this decision — which is about liquidation and not about buy-backs, so the 1 October 2024 changeover does not touch it — is why. The Supreme Court held that when a shareholder receives money or assets on the liquidation of a company he receives them in satisfaction of a right that already belonged to him by virtue of holding the shares, not by any transaction amounting to sale, exchange, relinquishment or transfer, and that this reasoning covers extinguishment of rights in a capital asset as well. It then held that s.46(2) "was enacted both with a view to make shareholders liable for payment of tax on capital gains as well as to prescribe the mode of calculating the capital gains", and that but for that sub-section it would not have been possible to charge capital gains on a liquidation distribution at all. Because s.46(2) then applied only to companies within the s.2(17) definition, and the company in liquidation was a Uganda company outside it, no charge could be sustained and the Revenue's appeal was dismissed with costs.
• Embassy Office Parks REIT v DCIT — a REIT cannot amortise its IPO expenses under section 35D(2)(c) because it is not a company ITATHelps departmentValidity unconfirmed
  Our REIT incurred large expenses on its initial public offer and listing. Can it write them off over ten years under section 35D like a listed company?
  No, on the Bangalore Tribunal's reasoning. Clause (c) of section 35D(2) opens with the words 'where the assessee is a company', and a SEBI-registered Real Estate Investment Trust constituted under the Indian Trusts Act 1882 is neither a company under the Companies Act 2013 nor a company within section 2(17) of the Income-tax Act, so the deduction is unavailable however closely the public issue of units resembles a public issue of shares. The Tribunal held those opening words to be a conscious legislative limitation and not surplusage, refused to read units as shares, and dismissed the appeal.
• ITO v Ketan Bhanuchandra Mahta ITATCuts both waysValidity unconfirmed
  The Assessing Officer has included the company's share premium account in accumulated profits to support a s.2(22)(e) addition. Can he?
  No. The Tribunal held that share premium is not available for distribution as dividend and is required to be treated as part of the share capital, so it cannot be commercial profits and cannot be included in accumulated profits for s.2(22)(e). The same order confirms, against the assessee, that current year's profits up to the date of each payment must be included, because Explanation 2 defines accumulated profits to include all profits up to the date of payment.
• Statutory position — s.46(1) and s.46(2): the company is not charged on a liquidation distribution, the shareholder is, and the s.2(22)(c) deemed dividend is deducted before capital gains are computed CBDT Circulars & InstructionsCuts both ways
  My client's company has gone into liquidation and the liquidator has distributed cash and one immovable property to the shareholders. Who is charged to capital gains — the company or the shareholder — and what exactly is the figure the shareholder is taxed on?
  Neither limb of section 46 concerns a buy-back, so the 1 October 2024 buy-back changeover does not touch it; section 46 governs liquidation only, and it has read in identical words on departmental pages stamped Year 1966, Year 1973, Year 2009 and Year 2024 (No. 2). Section 46(1) says that where the assets of a company are distributed to its shareholders on its liquidation, that distribution "shall not be regarded as a transfer by the company for the purposes of section 45" — so the company is not charged on the distribution. Section 46(2) then charges the shareholder: he is chargeable under the head "Capital gains" on the money received plus 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-clause (c) of clause (22) of section 2", and the sum so arrived at is deemed to be the full value of the consideration for section 48.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.