LTCG on land distributed by company

Hello,

1. Yes, the distribution of assets on liquidation by a company will be deemed to be a dividend to the extent it has the balance of accumulated free reserves and the company will have to pay dividend distribution tax (DDT) on the same.

2. The shareholder will be liable to capital gains both times. 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 section 2(22)(c) (as stated in point no. 1) and the sum so arrived at shall be deemed to be the full value of the consideration for the purposes of section 48. And further, if the asset (other than cash) acquired by the shareholder, at the time of liquidation, is subsequently transferred by the shareholder; then for the purpose of computation of capital gain of such transfer, the cost of acquisition of such asset shall be the market value of the asset on the date of distribution.

I hope that this answer satisfies your requirements.

Regards,

CA Hunny Badlani

Dear Sir,

Hope you are doing well !!

1. Yes, the company should pay DDT.

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 with in 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. Computation : Money received + Market value of the asset – Deemed dividend u/s 2(22)(c) = Sale Consideration of the shares in the liquidating company.

When the shareholder subsequently sells the capital asset which he received earlier from the company in liquidation, he would be assessable on the excess of the sale price realized over the market value of the asset on the date of distribution by the company in liquidation, if he had already been assessed to tax on the basis of such market value at the time of distribution (section 55(2)(b)(iii)).

Where no such tax has been assessed on the shareholder and he subsequently sells the capital asset received on the liquidation of the company, he is assessable on the basis of the cost for which the company had acquired the asset, as increased by the cost of any improvement incurred by the company or the shareholder, as the case may be (section 49(1)(iii)(c)).

Yes DDT would be paid u/s 2(22)(c) on closure of company.

Such capital gain shall be calculated by taking sale consideration as 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 section 2(22)(c) and the sum so arrived at shall be deemed to be the full value of the consideration.

When the shareholder sells such land he'll pay capital gain only on the difference amount.

Hope you find the information helpful if you do please rate it 5 and provide your valuable feedback for my improvement.

Thank you

Dear Sir,

Here are my replies to your queries:

1. Yes, company have to dividend distribution tax at the time of distribution of companies asset that is land to the shareholders.

2. Capital gain should be paid by the shareholders at the time of further sale of the property by the shareholders. 

Thanks and Regards 

Divya Chugh