Liquidation distribution as dividend: amounts referable to accumulated profits were taxable under the amended dividend definition.

Distribution received by a shareholder from a company in liquidation was treated as dividend to the extent it was referable to accumulated profits under section 2(6A)(c) of the Indian Income-tax Act, 1922. The provision was construed as a whole, including the proviso, to reflect legislative intent that only accumulated profits within the relevant period were brought within the charging definition. The amended form of section 2(6A)(c), brought into force by the Finance Act, 1955, was held applicable for assessment year 1955-56 because the assessment had to be made under the law in force for that year. The liability was therefore affirmed on the portion attributable to accumulated profits.

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Issues: (i) Whether, for the assessment year 1955-56, the amount received by a shareholder from the liquidator of a company in liquidation was taxable as dividend to the extent referable to accumulated profits under section 2(6A)(c) of the Indian Income-tax Act, 1922. (ii) Whether the unamended or amended form of section 2(6A)(c) applied to the assessment year 1955-56.

Issue (i): Whether, for the assessment year 1955-56, the amount received by a shareholder from the liquidator of a company in liquidation was taxable as dividend to the extent referable to accumulated profits under section 2(6A)(c) of the Indian Income-tax Act, 1922.

Analysis: The provision was read as a whole, including the proviso, to ascertain the legislative purpose. Although, on liquidation, the liquidator deals with assets and profits may lose their separate character, the language was held to be aimed at distributions attributable to accumulated profits of the company. The expression "out of accumulated profits" was treated as indicating the source of the distribution, and the proviso showed that only accumulated profits of the preceding six years were intended to be brought within the charging definition.

Conclusion: Yes. The portion of the amount received by each assessee that was referable to the accumulated profits of the company was taxable as dividend.

Issue (ii): Whether the unamended or amended form of section 2(6A)(c) applied to the assessment year 1955-56.

Analysis: The amendment made by the Finance Act, 1955, took effect from 1 April 1955 and governed assessments for the assessment year 1955-56. The relevant previous year fell within the period to which the amended provision applied, and the settled principle was that the law in force for the assessment year governs the assessment.

Conclusion: The amended form of section 2(6A)(c) applied to the present case.

Final Conclusion: The reference was answered in favour of the Revenue on both questions, and the assessees were held liable to tax on the distribution referable to accumulated profits under the amended definition of dividend.

Ratio Decidendi: In construing a taxing provision, the court must give effect to the legislative intent disclosed by the text as a whole and the proviso; a liquidation distribution remains taxable as dividend where it is referable to accumulated profits, and the provision applicable is the one in force for the relevant assessment year.

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