Deemed dividend requires accumulated profits; share surrender proceeds were taxed only as short-term capital gains.

Receipt on surrender of shares was examined under section 2(22)(d) to determine whether it constituted deemed dividend or short-term capital gains. The Tribunal held that the statutory conditions for deemed dividend were not met because the company lacked accumulated profits on the relevant date. As the payment arose from surrender of shares and not from distributable profits, the amount was not taxable as deemed dividend and was assessable only as capital gains from the share surrender.

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Issues: Whether the sum of Rs. 40,000 received on surrender of shares was assessable as deemed dividend under section 2(22)(d), or only as short-term capital gains.

Analysis: The receipt arose from surrender of 1000 shares for Rs. 40,000 in the relevant assessment year. The Tribunal applied section 2(22)(d) of the Income-tax Act, 1961 and followed its earlier view on identical facts, holding that the statutory requirements for deemed dividend were not satisfied because the company did not have accumulated profits on the relevant date. On the same reasoning, the amount could not be taxed as deemed dividend and was assessable only as capital gains arising from the share surrender.

Conclusion: The amount of Rs. 40,000 was not taxable as deemed dividend and the assessee was liable only to tax on short-term capital gains.

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