The Commissioner Of Income Tax - 10, Mumbai v. Shri Nayan Arvind Shah

IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.1856 OF 2009 ANDINCOME TAX APPEAL NO.1857 OF 2009ANDINCOME TAX APPEAL NO.1858 OF 2009 The Commissioner of Income Tax - 10, Mumbai Versus Shri Nayan Arvind Shah ..Appellant. ..Respondent. Mr.Vimal Gupta for the appellant.Mr.P.J. Pardiwala, Senior Advocate with Mr.Atul K. Jasani and Mr.P.C. Tripathi for the respondent. CORAM : J.P. Devadhar & A.A. Sayed, JJ. P.C. : DATE : 5[th] July, 2011. 1.In all these appeals, the question raised by the Revenue is, where a shareholder on the liquidation of Company receives an asset from the Company with the liabilities attached to it, then the value of that asset for the purposes of Section 46(2) of the Income Tax Act, 1961 should be taken at the fair market value or at the fair market value as reduced by the liabilities attached to the said asset ? 2.According to the Revenue, the expression "full value" in Section 46(2) clearly indicates that for the purpose of Section 48, full value of the asset should be taken into consideration without excluding therefrom any liabilities attached to the said asset. 3.In the present case, the finding of fact recorded by the Income Tax Appellate Tribunal is that the liquidator of the Company distributed the assets of the Company to the shareholders with the liabilities attached to that asset, as liquid funds were not available with the Company for discharging the liabilities attached to the asset. It was open to the liquidator to sell the assets and after discharging the liabilities attached to the asset, distribute the balance amount amongst the shareholders. In the present case, the liquidator has distributed the assets to the shareholders leaving it to the shareholder to discharge the liabilities attached to that asset. In the present case, the fact that the assets were transferred to the shareholders with liabilities attached to it is not in dispute. The fact that the shareholders have in fact discharged the liabilities attached to the asset is also not in dispute. In these circumstances, the decision of the Tribunal that where an asset of the Company in liquidation is distributed to the shareholder with a specific liability attached to it, then the value of the asset for the purposes of Section 46(2) of the Act should be the full value of the asset as reduced by the amount paid by the shareholder for discharging the liability attached to the asset cannot be faulted. 4.In this view of the matter, we see no merit in these appeals. The appeals are accordingly dismissed with no order as to costs. (A.A. Sayed, J.) (J.P. Devadhar, J.)