Dividend on liquidation is confined to accumulated profits; current-year profits and notional section 23A amounts were excluded.

In liquidation, the statutory definition of dividend applied only to accumulated profits within the six preceding years; current profits of the broken period up to liquidation were not treated as accumulated profits and could not be brought within the deeming provision. The amount assessed under section 23A in an earlier year was merely notional and never actually available with the company or liquidator, so it also could not form part of accumulated profits available for distribution as dividend. On both questions, the tax treatment favoured the assessee and the reference was answered against the Revenue.

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Issues: Whether the distribution of the profits of the current accounting year up to the date of liquidation constituted dividend within section 2(6A)(c); and whether the amount assessed under section 23A in an earlier assessment year could be treated as accumulated profits available for dividend on liquidation.

Issue (i): Whether the distribution of the profits of the current accounting year up to the date of liquidation constituted dividend within section 2(6A)(c).

Analysis: The definition of dividend in section 2(6A) was held to apply to accumulated profits and, in the case of liquidation, only to accumulated profits of the six previous years preceding the date of liquidation. Current profits of the broken period ending with liquidation were not treated as accumulated profits. The liquidator's distribution of those current profits could not be brought within the statutory fiction merely because the company had gone into liquidation.

Conclusion: The distribution of the current year's profits was not dividend within section 2(6A)(c) and the issue was decided in favour of the assessee.

Issue (ii): Whether the amount assessed under section 23A in an earlier assessment year could be treated as accumulated profits available for dividend on liquidation.

Analysis: The sum assessed under section 23A was only a notional amount and had never been received by the company. As it was not in fact available with the company or the liquidator for distribution, it could not be treated as accumulated profits capable of being distributed as dividend.

Conclusion: The amount assessed under section 23A could not be treated as accumulated profits available for dividend and the issue was decided in favour of the assessee.

Final Conclusion: The reference was answered against the Revenue on both questions, and the assessee succeeded on the substantive tax treatment of the disputed distributions.

Ratio Decidendi: In a liquidation case, only accumulated profits of the six previous years preceding liquidation fall within the statutory definition of dividend, and current year profits or notional amounts not actually available for distribution cannot be treated as dividend under the deeming provision.

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