No TDS on distribution of assets on liquidation

No TDS on distribution of assets on liquidation

Someone Asked On This blog

A Pvt Ltd Company is under Liquidation and there is excess of assets over liabilities( due to accumulated Profits) which the liquidator wants to distribute among the shareholder. What are the implications with reference to Section 194 read with sec 2(22)(c) and also under sec 115-O Will both the sections apply since this dividend u/s 2(22)(c) is not in the normal course of business s_mirji@.....com

If there is "accumulated profits", to that extent the distribution of assets whether capitalised or not, shall be taken as Dividend but not subject to TDS since the Dividend u/s 10(34) of the I T Act is exempt from tax .However , Company has to pay tax on the distributed profits u/s 115- O shall be applicable.Remember the dividend referred in Section 115-O only is tax free.

Remember , the share of profits received by each shareholder shall be subject to taxation under Section 46(2) of the I T Act as capital gain on the amount distributed profit received minus portion of dividend . Read Section 46 of the I T Act which states :

"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."