Liquidation distribution and notional capital gains are not dividend unless attributable to accumulated profits under tax law.

Distribution on liquidation is taxable as dividend only to the extent it is attributable to the company's accumulated profits immediately before liquidation. A notional profit arising from sale of capital assets under section 10(2)(vii) is treated as income only for assessment under that provision and does not become commercial or accumulated profit for dividend purposes. The legal fiction cannot be extended beyond its limited statutory purpose, so excess realised on sale of capital assets remains a capital return. Accordingly, the amount received by the shareholder on winding up was not dividend within section 2(6A)(c) and was not taxable as such.

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Issues: Whether the amount received by a shareholder on winding up, representing a notional profit arising from sale of the company's assets under section 10(2)(vii), was includible as dividend under section 2(6A)(c) of the Income-tax Act, 1922.

Analysis: Distribution on liquidation is taxable as dividend only to the extent attributable to the accumulated profits of the company immediately before liquidation. A notional profit created by the statutory fiction under section 10(2)(vii) is treated as income only for the limited purpose of assessment under that provision. It does not become commercial profit or accumulated profit in the ordinary sense, and the legal fiction cannot be extended beyond its specific purpose. The excess realised on sale of capital assets, though assessable as income under the statute, remains a capital return and cannot be treated as dividend on liquidation merely because it was brought to tax under section 10(2)(vii).

Conclusion: The amount in question was not dividend within section 2(6A)(c) and was not taxable as such in the hands of the shareholder.

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