Liquidation distributions and dividend tax depend on tracing payments to remaining accumulated profits, not on automatic presumption.

A liquidator's later distribution is taxable as dividend only if it is shown, in fact, to be attributable to accumulated profits remaining at the date of distribution; section 2(6A)(c) creates a limited legal fiction and does not deem every liquidation payment to be dividend. The earlier assessment of part of the fund under the pre-amendment proviso did not by itself establish that all accumulated profits had been exhausted. Because no finding was made that the later distribution represented accumulated profits, and no apportionment or dissection was undertaken, the statutory basis for dividend tax failed. The amount was therefore not taxable as dividend, although the Chief Justice dissented and would have upheld taxability to the extent traceable to remaining profits.

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Issues: Whether, after the deletion of the proviso to section 2(6A)(c), the sum of Rs. 75,000 distributed by the liquidator in the relevant accounting year was taxable as dividend on the footing that it was attributable to accumulated profits remaining unexhausted by earlier distributions.

Analysis: The majority held that section 2(6A)(c) is a defining provision that creates a limited legal fiction and does not deem every distribution by a liquidator to be attributable to accumulated profits. The taxability of a later distribution depends on whether, as a matter of fact, it can be traced to accumulated profits actually remaining at the date of that distribution. The earlier assessment of Rs. 50,500 under the pre-amendment proviso exhausted only the profits capable of taxation under that restricted regime and did not, by itself, establish that the entire fund of accumulated profits had been consumed. Since the Tribunal had not found that the later sum of Rs. 75,000 represented or reflected accumulated profits of earlier years, and had not undertaken dissection or apportionment of the distribution, the statutory basis for treating that amount as dividend was absent.

Conclusion: The amount of Rs. 75,000 could not be treated as dividend under section 2(6A)(c), and the question was answered in favour of the assessee.

Dissenting Opinion: J.M. Shelat, C.J. held that after deletion of the proviso the revenue could again go behind the liquidation proceedings and treat the later distribution as dividend to the extent traceable to accumulated profits remaining in the hands of the liquidator, and therefore answered the question in the affirmative.

Ratio Decidendi: For a distribution by a liquidator to be taxed as dividend under section 2(6A)(c), the revenue must show that the distribution is in fact attributable to accumulated profits remaining at the time of that distribution; the provision does not create a presumption that later distributions are deemed to exhaust or revive accumulated profits merely because earlier amounts were not fully taxed.

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