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Income-tax Act, 1961 · Chapter IV: Computation of Total Income · E.—Capital gains

Section 46: Capital gains on distribution of assets by companies in liquidation

The Income-tax Act, 1961 was repealed by the Income-tax Act, 2025 from 1 April 2026. The text is kept here because the judgments below apply it.

In plain words

When a company in liquidation distributes its assets to shareholders, the company is not treated as transferring them. The shareholder is taxed on capital gains instead.

  • The shareholder's capital gain is based on the money received or market value of assets on the date of distribution.
  • That figure is reduced by the part already treated as dividend under section 2(22)(c), so the same amount is not taxed twice.

A simplified explanation, prepared with AI assistance from the official text below and checked automatically against it for numbers and cross-references. The official text is the law and prevails over this summary. Not legal advice.

Official text

(1) Notwithstanding anything contained in section, where the assets of a company are distributed to its shareholders on its liquidation, such distribution shall not be regarded as a transfer by the company for the purposes of section 45.

(2) Where a shareholder on the liquidation of a company receives any money or other assets from the company, he shall be chargeable to income-tax under the head —Capital gains‖, in respect of the money so received or 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 shall be deemed to be the full value of the consideration for the purposes of section 48.

Source: India Code (Legislative Department), the text of the Act as it stood before its repeal. Words in square brackets [ ] were inserted or substituted by later amending Acts, and *** marks words omitted by an amendment. The amendment footnotes are not reproduced here. Official text on India Code.

Supreme Court judgments citing the section 46