Dividend definition excludes capital gains from compulsory acquisition distributions when profits are credited to capital reserve.

The inclusive definition of dividend under section 2(6A) of the Indian Income-tax Act, 1922 extends to distributions of accumulated profits when a company releases assets to shareholders, but the second proviso excludes post-31 March 1948 capital gains from accumulated profits. Where the distribution represented excess realised on compulsory acquisition of a capital asset and was carried to capital reserve before being paid out, it fell within that exclusion. The sums received on distribution of the company's compensation amount were therefore outside the statutory meaning of dividend and were not taxable as dividend under the Act.

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Issues: Whether the sums received by the assessees on distribution of the company's compensation amount were dividend and taxable as such under the Indian Income-tax Act, 1922.

Analysis: The definition of dividend in section 2(6A) is inclusive and extends to distributions of accumulated profits where the company releases assets to shareholders. However, the second proviso excludes capital gains arising after 31 March 1948 from the scope of accumulated profits. The amount distributed in this case represented the excess realised on compulsory acquisition of a capital asset, which constituted capital gain and was transferred to capital reserve before distribution. Since the profit fell within the proviso's exclusion, the distribution was outside the extended statutory definition of dividend and could not be brought in under the ordinary meaning of the word either.

Conclusion: The sums received by the assessees were not dividend and were not taxable as such.

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