Withdrawal of rebate on undistributed profits extends to liquidator distributions treated as dividend under the income-tax scheme.

Section 35(10) of the Indian Income-tax Act, 1922 authorised withdrawal of rebate for assessment years beginning between 1 April 1948 and 1 April 1955, and its operation was not confined to the narrower period suggested by the assessee. The provision was therefore available for earlier assessment years where rebate on undistributed profits had been used for dividend distribution. Distributions made by a liquidator during voluntary winding up out of accumulated profits were treated as attributable to the company and within the statutory concept of dividend. The withdrawal of rebate was thus upheld on both grounds.

---

---

Issues: (i) Whether section 35(10) of the Indian Income-tax Act, 1922 authorised withdrawal of rebate in respect of assessment years beginning before 1 April 1956; (ii) Whether distributions made by a liquidator out of accumulated profits during voluntary winding up could be treated as declaration of dividend so as to attract section 35(10).

Issue (i): Whether section 35(10) of the Indian Income-tax Act, 1922 authorised withdrawal of rebate in respect of assessment years beginning before 1 April 1956.

Analysis: Section 35(10), inserted by the Finance Act, 1956 with effect from 1 April 1956, applied to assessments for the years beginning on 1 April 1948 to 1 April 1955 inclusive and enabled recomputation where rebate on undistributed profits had been availed of for declaring dividends. The earlier decision relied upon did not impose the limitation that only rebates granted for the four years immediately preceding 1956 could be recalled. The language of the provision controlled the enquiry, and its operation was not confined in the manner suggested.

Conclusion: The provision did authorise withdrawal of rebate in the relevant earlier assessment years, and this issue was against the assessee.

Issue (ii): Whether distributions made by a liquidator out of accumulated profits during voluntary winding up could be treated as declaration of dividend so as to attract section 35(10).

Analysis: A company in voluntary winding up continues to exist until dissolution, and the liquidator acts as its statutory agent in administering and distributing assets. The amended definition of dividend in section 2(6A)(c) of the Indian Income-tax Act, 1922 treated distributions on liquidation attributable to accumulated profits as dividend, and section 35(10) was read as part of the same scheme. Distribution by the liquidator of accumulated profits with refund certificates was therefore not outside the expression "declaring dividends" for the purpose of the provision.

Conclusion: Such distributions were rightly treated as dividend declarations for section 35(10), and this issue was against the assessee.

Final Conclusion: The rebate could be withdrawn and the liquidator's distributions fell within the statutory conception of dividend, so the challenge to the tax demand failed.

Ratio Decidendi: For purposes of section 35(10) of the Indian Income-tax Act, 1922, distributions of accumulated profits by a liquidator in voluntary winding up are attributable to the company and may be treated as declaration of dividend within the statutory scheme governing withdrawal of rebate on undistributed profits.

---