Taxability of liquidation proceeds turned on a contextual reading of "six previous years" under the dividend provision.

The proviso to section 2(6A)(c) of the Indian Income-tax Act, 1922 was interpreted to mean that "six previous years" refers to the six accounting years of the company immediately before liquidation, not to a rigid requirement that each year be followed by an assessment year. The provision was treated as limiting the period of accumulated profits that could be brought to tax on liquidation, and the expression "previous year" was read in context rather than literally in every case. On that construction, the amount received from the liquidator was treated as taxable dividend.

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Issues: Whether the sum received by the assessee from the liquidator of a company on liquidation was liable to be taxed as dividend under section 2(6A)(c) of the Indian Income-tax Act, 1922, having regard to the meaning of the words "six previous years" in the proviso and their relation to section 2(11)(a).

Analysis: The words "six previous years" in the proviso to section 2(6A)(c) were construed in their context as referring to the six accounting years of the company immediately preceding liquidation, and not as requiring that each such year must be followed by an assessment year. The proviso was treated as a limitation on the period of accumulated profits that could be brought to tax on liquidation, and the expression "previous year" was not read rigidly as depending in every case upon an immediately following assessment year. The context of the definition section and the object of the provision supported inclusion of accumulated profits earned within the six accounting years before liquidation.

Conclusion: The amount of Rs. 26,000 received by the assessee was liable to be taxed as dividend within the meaning of section 2(6A)(c) of the Indian Income-tax Act, 1922, against the assessee.

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