Distribution on liquidation treated under dividend proviso limited to company's six preceding years; payment not taxable in later assessment year.

The core issue is whether a sum paid on company liquidation constituted taxable income of the shareholder. The court reasoned that section 12B taxes the company's capital gain and does not tax the shareholder on the company's realisation, so capital-gains characterisation for the company cannot be used to tax the shareholder. Alternatively, if treated as a distribution under the dividend provision, the proviso confines inclusion to accumulated profits arising in the six company accounting years preceding liquidation; the shareholder's later accounting year of receipt is immaterial. Result: the sum was not rightly taxed in the later assessment year.

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Issues: Whether the sum of Rs. 31,250 received by the assessee on the liquidation of the company was rightly taxed in the assessment year 1947-48.

Analysis: The amount represented the difference between the shareholder's subscribed capital and the share of assets distributed on liquidation. The Tribunal characterised the amount alternatively as dividend under section 2(6A)(c) or as capital gains under section 12B. Section 12B applies to the company's own capital gain and does not operate to tax the shareholder on the company's sale of its capital assets. If treated as a distribution under section 2(6A)(c), the proviso to that sub-clause limits inclusion to accumulated profits arising in the six previous years of the company preceding the date of liquidation. The company's realisation occurred on 31 March 1947, so only accumulated profits of the six accounting years of the company prior to the year ending 31 March 1947 fall within the proviso. The fact that the dividend accrued to the assessee in his accounting year ending 12 April 1947 is not material to the scope of the proviso, which is tied to the company's years preceding the date of liquidation.

Conclusion: The questioned sum of Rs. 31,250 was not rightly taxed in the assessment year 1947-48; decision is in favour of the assessee.

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