Section 46(2)

Section 46(2) — the law in short

What the courts have decided on section 46(2), in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• PCIT v Jupiter Capital Pvt Ltd Supreme CourtHelps taxpayerValidity unconfirmed
  My client's shareholding was cut down in a court-approved reduction of capital but the face value stayed the same and his percentage did not change. Can he claim the capital loss?
  Yes. The Supreme Court held that a reduction of share capital of a subsidiary, with a proportionate reduction in the assessee's shareholding, falls squarely within 'sale, exchange or relinquishment of the asset' in s.2(47), so the resulting capital loss is allowable. It is no answer that the face value per share was unchanged or that the percentage of shareholding stayed the same.
• N. Bagavathy Ammal v CIT Supreme CourtHelps departmentValidity unconfirmed
  My client received agricultural land from a company in liquidation. Agricultural land is not a capital asset, so is there anything to tax under s.46(2)?
  Yes. The Supreme Court held that the word 'assets' in s.46(2) is not to be read as 'capital assets' as defined in s.2(14). A shareholder who receives assets of any kind on liquidation is chargeable on the market value of those assets on the date of distribution, and the exclusion of agricultural land from the definition of capital asset does not help him.
• T R Balasubramanium v ACIT High CourtHelps taxpayerValidity unconfirmed
  I received a flat when my company was wound up, paid capital gains tax then, and sold it in the same year. What is my cost?
  The fair market value of the asset on the date of distribution. A liquidation produces two transfers, not one — the extinguishment of the shareholder's rights in exchange for the asset, and then the shareholder's own sale of that asset — and where the shareholder has been assessed to capital gains on the first, s.55(2)(b)(iii) gives him the distribution-date value as his cost for the second.

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.