1965 (11) TMI 144 - HC - Income Tax

Court rules current profits not accumulated under Income-tax Act; rejects revenue's arguments.

COMMISSIONER OF INCOME-TAX, MADRAS Versus MV. MURUGAPPAN AND OTHERS AND AMMV. VALLIAMMAI ACHI & OTHERS

COMMISSIONER OF INCOME-TAX, MADRAS Versus MV. MURUGAPPAN AND OTHERS AND AMMV. VALLIAMMAI ACHI & OTHERS - [1966] 62 ITR 382 (Mad) Issues Involved:1. Whether the sum of Rs. 81,611 constituted accumulated profits under section 2(6A)(c) of the Income-tax Act, 1922.2. Whether the sum of Rs. 1,49,444 constituted accumulated profits under section 2(6A)(c) of the Income-tax Act, 1922.Issue-Wise Detailed Analysis:1. Sum of Rs. 81,611 as Accumulated Profits:The Income-tax Officer included Rs. 81,611 as part of the accumulated profits of the company. However, the Tribunal held that this amount, representing current profits for the period from January 1, 1954, to October 31, 1954, could not be regarded as accumulated profits under section 2(6A)(c). The Tribunal relied on previous judgments, including T. Appavu Chettiar v. Commissioner of Income-tax and Girdhardas and Co. Ltd. v. Commissioner of Income-tax, which distinguished between current and accumulated profits. The Tribunal's view was that accumulated profits should be understood in contrast to current profits, and any distribution from current profits would not constitute a dividend. The High Court agreed with this interpretation, noting that the term 'accumulated' implies profits that are heaped up or stored, indicating past profits rather than current ones. The court concluded that the sum of Rs. 81,611, being current profits, did not fall within the ambit of 'accumulated profits' as defined in section 2(6A)(c).2. Sum of Rs. 1,49,444 as Accumulated Profits:The Tribunal also excluded the sum of Rs. 1,49,444 from the accumulated profits. This amount was a tax refund received by the company in 1960, which was initially paid in 1953. The Tribunal noted that since the refund was received after the liquidation date, it could not be considered part of the accumulated profits at the time of distribution. Additionally, the Tribunal pointed out that accumulated profits imply a conscious decision by the company to set aside profits, which was not the case here. The High Court supported this view, stating that the refund amount was not available for distribution at the time and that accumulated profits require a deliberate act of accumulation. The court rejected the revenue's argument that the refund should be treated as if the tax was never levied, noting that such a fiction would require legislative provision. The court held that the sum of Rs. 1,49,444 could not be included in the accumulated profits as it was not available at the time of distribution and was not consciously accumulated by the company.Conclusion:The High Court concluded that both sums, Rs. 81,611 and Rs. 1,49,444, were not part of the accumulated profits of the company as of October 31, 1954, under section 2(6A)(c) of the Income-tax Act, 1922. The court answered the reference against the revenue, affirming the Tribunal's decision and awarding costs to the assessee.