Liquidation distributions and deemed dividend: section 46(2) covers agricultural land, but exhausted profits cannot be taxed again.

Section 46(2) creates a separate charge on money or other assets distributed to a shareholder on liquidation, and its scope is not confined by the definition of capital asset under section 2(14); agricultural land distributed on liquidation is therefore covered, with the issue decided for the Revenue. Separately, where accumulated profits had already been written off in the company's books and the balance had been assessed earlier in the hands of the assessee's father, no further amount remained taxable as deemed dividend, so that issue was decided for the assessee.

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Issues: (i) Whether section 46(2) of the Income-tax Act, 1961 applies to agricultural lands distributed to shareholders on liquidation of a company; (ii) Whether any amount was taxable as deemed dividend under section 2(22)(c) of the Income-tax Act, 1961 when the accumulated profits had already been written off and taxed in the hands of the assessee's father under the Indian Income-tax Act, 1922.

Issue (i): Whether section 46(2) of the Income-tax Act, 1961 applies to agricultural lands distributed to shareholders on liquidation of a company.

Analysis: Section 46(2) is an independent charging provision dealing with money or other assets received by a shareholder on liquidation. The expression used is "other assets", not "capital assets". The provision charges the shareholder on the money received or the market value of the assets distributed, subject only to the deduction expressly permitted by that section. The definition of "capital asset" in section 2(14) is relevant to section 45, but not to the scope of section 46(2). Agricultural land may fall outside the definition of capital asset, yet it remains an asset. The exemption from capital gains on agricultural land under the scheme of section 45 does not control the distinct charge created by section 46(2).

Conclusion: The section applies to agricultural lands received on liquidation, and the issue is decided against the assessee and in favour of the Revenue.

Issue (ii): Whether any amount was taxable as deemed dividend under section 2(22)(c) of the Income-tax Act, 1961 when the accumulated profits had already been written off and taxed in the hands of the assessee's father under the Indian Income-tax Act, 1922.

Analysis: The material amount treated as accumulated profits had been substantially written off in the company's books before liquidation, and the balance had already been assessed in the hands of the assessee's father under the earlier Act. On those facts, no further amount remained available to be taxed again as deemed dividend in the hands of the assessees.

Conclusion: No deemed dividend was available for taxation under section 2(22)(c), and the issue is decided in favour of the assessee and against the Revenue.

Final Conclusion: The reference is answered partly in favour of the Revenue and partly in favour of the assessee, with the first question answered for the Revenue and the second question answered for the assessee.

Ratio Decidendi: Section 46(2) creates a self-contained charge on money or other assets distributed to a shareholder on liquidation, and its operation is not limited by the definition of capital asset under section 2(14); separately, an amount already exhausted or assessed as accumulated profits cannot again be taxed as deemed dividend.

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