Judgment :- THANIKKACHALAM J. This is a reference at the instance of the Department under section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), in which the question referred for our consideration is "whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that, but for the fact that the original assessment had adopted a loss of Rs. 13, 028 under the head "Capital gains", the actual loss that would have qualified for set off would have been Rs. 13, 99, 887." * The assessee is a public limited company. The accounting period relevant to the assessment year 1968-69 under consideration ended on April 5, 1968. The original assessment in this case was completed on October 22, 1968. In making the original assessment on October 22, 1968, the Income-tax Officer computed the loss under the head "Capital gains" as under. Rs Capital gains as returned : 2, 83, 596 Less : Previous year's loss set off : 2, 96, 624 Balance loss to be carried forward : 13, 028 Thereafter, the Income-tax Officer reopened the assessment under section 147(b) of the Act. In making the reassessment, the Income-tax Officer computed the capital gains at Rs. 2, 83, 596. This the Income-tax Officer has done by relying on the detailed reasons given by him in the assessment for the assessment year 1966-67, wherein the carried forward loss was not given a set-off. As against the assessment made for the assessment year 1966-67, there was an appeal to the Appellate Assistant Commissioner who held that the assessee was not entitled to carry forward the loss and the further appeal to the Tribunal was withdrawn on this point. However, in the assessment year under consideration, the assessee appealed to the Appellate Assistant Commissioner and submitted that the capital gains would not be the entire receipts of Rs. 2, 83, 596, but the capital gain ought to have been computed in accordance with the provisions of the ActIn the assessment year 1968-69, the assessee received disbursement of certain amounts from the official liquidator from the following three private limited companies as under. 1. Comorin Investment and Trading Company Private Ltd Rs The assets received from the liquidator in February, 1960, against the company's holding of 3, 000 fully paid equity shares of Rs. 100 each Madura Mills shares in specie at Rs. 1. Comorin Investment and Trading Company Private Ltd Rs The assets received from the liquidator in February, 1960, against the company's holding of 3, 000 fully paid equity shares of Rs. 100 each Madura Mills shares in specie at Rs. 30 per share : 8, 66, 670.00 Cash : 6.10 8, 66, 676.10 Less Net value of section 2(6A), dividend accounted for in the profit and loss account as a revenue receipt after tax deduction at source: 1, 83, 154.41 Balance representing capital asset : 6, 83, 521.69 (1) Cost of acquisition of 3, 000 shares acquired before January 1, 1954 : 9, 36, 690.00 (2) Capital loss (2 minus 1) : 2, 53, 168.00 (A) 2. Harveys Private Limited Assets received from the liquidator in February 1960, against the company's holding of 7, 500 full paid equity shares of Rs. 100 each. (i) 35, 370 Madura Mills shares in specie at Rs. 30 per share 10, 61, 100.00 (ii) To cash 20.14 10, 61, 120.14 Less : Net value of section 2(6A) dividend accounted for in the profit and loss account as revenue receipt after tax deduction at source : 2, 353.55 Balance representing capital receipt 10, 58, 766.59 (3) Cost of acquisition of 7, 500 shares 9, 35, 000.00 (4) Capital gains ( 3 minus 4) 1, 23, 766.00 (B) 3. Indian Mills Supply Co. Pvt. Ltd Assets received from the liquidator in February 1960 against company's holding of 280 fully paid equity shares of Rs. 100 each. (i) 425 Pandyan Weaving Mills shares in specie at Rs. 100 per share : 42, 500.00(ii) Cash 62.43 Total 42, 562.43 Less : Net value of section 2(6A) dividend accounted for in profit and loss account as a revenue receipt after tax deduction at source: 4, 749.68 A. Balance representing capital receipt 37, 813.75 (5) B. Cost of acquisition of 281 shares : 61, 892.92 (6) Capital loss (6 minus 5) 24, 079 (C) As far as the capital gain on the sale of Binny shares amounting to Rs. 6, 413 is concerned, there was no dispute. The Appellate Assistant Commissioner, thereafter, held that the computation would have to be as under. Comorin Investment and Trading Co. 6, 413 is concerned, there was no dispute. The Appellate Assistant Commissioner, thereafter, held that the computation would have to be as under. Comorin Investment and Trading Co. (P.) Ltd Rs Cost of acquisition of the shares: 9, 36, 690.00 Less : Amount received on first distribution in 1960 : 6, 83, 522.00 Unabsorbed cost of acquisition : 2, 53, 168.00 Second distribution in March, 1968 : 74, 520.00 Loss under the head "Capital Gains" relating to the assessment year 1968-69 2, 53, 168.00 Less: 74, 520.00 1, 78, 648.00 Harveys Private Ltd Cost of acquisition : 9, 35, 000.00 Less : Amount received on first distribution in 1960 : 10, 58, 767.00 Surplus: 1, 23, 766.00 The Appellate Assistant Commissioner, however, ultimately came to the conclusion that this amount could not be subjected to tax under section 12B(2) in view of the decision of the Supreme Court in CIT v. Madurai Mills Co. Ltd. 1973 AIR(SC) 1357, 1973 (89) ITR 45, 1973 (4) SCC 194 , 1973 (3) SCR 662 , 1973 TaxLR 680, 1973 (2) ITJ 174, 1973 (2) MLJ 40, 1973 (2) CTR 223, 1973 (2) CTR(SC) 223, 1973 SCC(Tax) 425, 1973 (2) CTR 223. Therefore, according to the Appellate Assistant Commissioner, since the full cost of acquisition had been recouped on the first distribution, the amount of Rs. 2, 02, 250 received in March, 1968, on account of the second distribution is assessable in full. In so far as the share of the Indian Mills Supply Co. (P.) Ltd. is concerned, even after taking into account the first distribution, there was an unabsorbed deficit in the cost of acquisition of Rs. 2, 04, 079. According to the Appellate Assistant Commissioner, this had to be set off against the amount of Rs. 313 received as distribution in March, 1968, and accordingly, arrived at a balance loss of Rs. 23, 466Thus, in so far as Comorin Investment and Trading Co. (P.) Ltd. is concerned, capital gain was nil and the net capital loss was Rs. 1, 78, 648. In so fat as Harveys Pvt. Ltd. is concerned, the net capital gain is Rs. 2, 02, 050 and there is no capital loss. In so far as Indian Mills Supply Co. (P.) Ltd. is concerned, there is no capital gain, but there is only a net capital loss of Rs. 23, 466. 1, 78, 648. In so fat as Harveys Pvt. Ltd. is concerned, the net capital gain is Rs. 2, 02, 050 and there is no capital loss. In so far as Indian Mills Supply Co. (P.) Ltd. is concerned, there is no capital gain, but there is only a net capital loss of Rs. 23, 466. In Binny's, the net capital gain was Rs. 6, 413. Therefore, the total gain was Rs. 2, 08, 463 and the total net capital loss was Rs. 2, 02, 114. Finally, the net capital gain arrived at is Rs. 6, 349. Aggrieved, the assessee filed an appeal before the Tribunal. Before the Tribunal, the assessee contended that since the first distribution was received in 1960, i.e., prior to the coming into force of the Income-tax Act, 1961. The assessee gave the working of the cost of acquisition in respect of the shares of the three companies as under. 1. Comorin Co. : Value of the shares as on January 1, 1954Rs. 312.23 x 3, 000 = Rs. 9, 36, 690 2. Harveys : Value of shares as on January 1, 1954 Rs. 137 x 5, 000 = Rs. 6, 85, 000 Actual cost of purchase of shares Rs. 100 x 25, 000= Rs. 2, 50, 000 Rs. 9, 35, 000 ----------------------- 3. Indian Mills : Value of shares as on January 1, 1954 Rs. 221.48 x 279 = Rs. 61, 793 Actual cost of purchase of shares Rs. 100 x 1= Rs. 100 Rs. 61, 893 Learned counsel for the assessee also gave a concession to the effect that he would not ask for reduction of the value of shares purchased after January 1, 1954, either in the case of Harveys or in the case of Indian Mills. Therefore, in respect of Harveys, he would seek only deduction of the market value as on January 1, 1954 of 5, 000 shares, i.e., Rs. 6, 85, 000, included in the amount of Rs. 9, 33, 000 and in the case of Indian Mills, he would seek deduction only of the value of 279 shares held on January 1, 1954, viz., Rs. 61, 793, included in the value of Rs. 61, 893. In the case or Comorin Co., since all the shares were acquired prior to January 1, 1954, he was seeking deduction of the full substituted market value of Rs. 9, 36, 690. 61, 793, included in the value of Rs. 61, 893. In the case or Comorin Co., since all the shares were acquired prior to January 1, 1954, he was seeking deduction of the full substituted market value of Rs. 9, 36, 690. According to learned counsel for the assessee, the cost of acquisition which the Appellate Assistant Commissioner has referred to in his order is the same aggregate cost of acquisition as given by the assessee. The contention of learned counsel for the Department was that there was no warrant for ignoring the first distribution made in the case of each of the companies. According to learned counsel for the Department, the distributions have to be taken as an integral one whether such distributions were prior to the coming into force of the Act of 1961 or later and there was no warrant for making any dichotomyAfter considering the arguments advanced on both sides, the Tribunal held as under. ". . . . At the time of the first distribution in the case of each of the companies in 1960, there was no statutory provision relating to deduction of the cost of any capital asset because there was no statutory provision relating to assessability of distributed amounts and deeming the same to be the full value of consideration for the purposes of capital gains. Hence, since only the general law has to be considered, it is clear that though the distribution by the liquidator may have been a capital receipt in the hands of the assessee in 1960, there was no question of deducting therefrom any cost of the shares as cost of the capital asset. In view of this conclusion of ours, the question of making any set-off for the cost of acquisition which should earlier be considered to have been deducted does not arise. It is for the first time after the coming into force of the Act of 1961 and in the present case, when the second distribution took place in March, 1968, that solely because of statutory provisions, the question has arisen of deducting the cost of acquisition of the capital asset, i.e., the shares. It is for the first time after the coming into force of the Act of 1961 and in the present case, when the second distribution took place in March, 1968, that solely because of statutory provisions, the question has arisen of deducting the cost of acquisition of the capital asset, i.e., the shares. Since this is the first occasion on which the question of such deduction has arisen, it stands to reason that the full cost of acquisition has to be deducted and, in this case, it will be the substituted market value as on January 1, 1954, of the shares referred to." * In the above-said view taken by the Tribunal, it was held that, while computing the capital gain under section 46(2) of the Income-tax Act, 1961. On the other hand, learned counsel for the assessee contended that the first distribution by the official liquidator was in the year 1960, when the Income-tax Act, 1961. It remains to be seen that when the assessee received the first distribution in the year 1960, the present Income-tax Act, 1961 1973 AIR(SC) 1357, 1973 (89) ITR 45, 1973 (4) SCC 194 , 1973 (3) SCR 662 , 1973 TaxLR 680, 1973 (2) ITJ 174, 1973 (2) MLJ 40, 1973 (2) CTR 223, 1973 (2) CTR(SC) 223, 1973 SCC(Tax) 425, 1973 (2) CTR 223. In construing the provisions of section 12B of the Indian Income Act, 1922, the Supreme Court held that. "The distribution of the assets of a company in liquidation does not amount to a transaction of sale, exchange, relinquishment or transfer so as to attract section 12B of the Indian Income-tax Act, 1922, as revived by the Finance (No. 3) Act, 1956, and that no capital gains arise to the shareholders of the company therefrom." * In order to understand the provisions contained in section-46(2) of the Income-tax Act, 1961, reliance was placed on the decision of this court in CIT v. M. A . Alagappan 1977 (108) ITR 1000, 1977 (6) CTR 142 According to the facts appearing in this case. "The liquidator of a company which went into voluntary liquidation sold some assets of the company to a new company and in pursuance of such sale the shareholders of the old company were allotted shares in the new company equal in number and face value to the shares held by them in the old company. "The liquidator of a company which went into voluntary liquidation sold some assets of the company to a new company and in pursuance of such sale the shareholders of the old company were allotted shares in the new company equal in number and face value to the shares held by them in the old company. The liquidator thereafter distributed from time to time various sums to the shareholders out of the realisations in respect of the remaining assets. The assessee received from the liquidator during the year of account relevant to the assessment year 1965-66 a sum of Rs. 8, 331. As the assessee had already received the full value of his original investment in the form of shares in the new company at the first distribution itself, the officer brought this sum of Rs. 8, 331 to tax as capital gains under section 46(2) of the Income-tax Act, 196." On these facts, this court held as under. "(1) that the distribution of assets of the company in liquidation does not amount to a transfer even under the extended definition of the word 'transfer' in section 2 (47);(2) section 46(1) is merely intended to make it clear that the company would not be liable for payment of any capital gains tax; (3) that section 46(2) provides that the amount received by the shareholder shall be chargeable to income-tax under the head 'Capital gains' and the amount to the extent it is not liable to be treated as dividend shall be deemed to be the full value of the consideration for purposes of section 48 and hence is an independent provision making the amounts received chargeable to income-tax under the head 'Capital gains' though it did not arise from the transfer of a capital asset. (4) Accordingly, even if capital gains of the nature falling under section 45 is alone included in the definition of income in section 2(24)(vi) and not any other kind of capital gains, section 46(2) makes the amount received by a shareholder on the liquidation of a company chargeable to income-tax under the head 'Capital gains' and hence it will have to be included in the total income of the assessee." * In this context, yet another decision brought to our notice was that in CIT v. Inland Agencies P. Ltd. 1983 (143) ITR 186, 1982 (30) CTR 174, 1982 (11) TAXMAN 218 (Mad), wherein while considering the provisions of sections 45, 46(1), (2) and 48 of the Income-tax Act, 1961 However, we consider that the question framed and referred to us by the Tribunal, in this reference, does not reflect the real issue arising on the facts and in the circumstances of the case. Therefore, considering the facts and circumstances arising in this case, we reframe the question comprehensively reflecting all facts as under. "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was correct, while computing the capital gain under section 46(2) of the Income-tax Act, 1961, for the assessment year 1968-69, in the case of the assessee, in deducting the cost of acquisition of shares held in various companies, from the full value of the consideration, viz., the second and final distribution made by the official liquidator in March, 1968, even though the assessee received the first distribution from the official liquidator in the year 1960?" * In the view that we have taken hereinabove, we answer the question referred to us in the affirmative and against the Revenue. The assessee is entitled to its costs. Counsel's fee Rs. 500.