Share premium distribution as dividend: amounts treated as taxable dividend when released from accumulated profits to shareholders.

Distribution made out of share premium could fall within the definition of dividend under section 2(6A)(a) of the Indian Income-tax Act, 1922 where it involved release of company assets to shareholders from accumulated profits, whether capitalised or not. The share premium was treated as profits available for distribution for dividend purposes, and Regulation 97 of Table A, Companies Act, 1913 did not prevent that characterisation. Section 78 of the Companies Act, 1956 did not change the tax treatment of dividends declared out of premiums received before that Act commenced. The receipt was therefore taxable as dividend in the shareholder's hands.

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Issues: Whether the distribution made out of share premium received by the company constituted dividend within section 2(6A)(a) of the Indian Income-tax Act, 1922 and was taxable in the hands of the shareholder.

Analysis: The definition of dividend in section 2(6A)(a) covers a distribution by a company of accumulated profits, whether capitalised or not, where the distribution entails release of the company's assets to shareholders. The share premiums in question were treated as profits available for distribution under the company law understanding of dividend, and the use of such premiums for dividend purposes was recognised before the enactment of section 78 of the Companies Act, 1956. Regulation 97 of Table A of the Companies Act, 1913 did not prevent the premiums from being treated as profits in this context. Section 78 of the Companies Act, 1956 did not alter the tax character of dividends declared out of premiums received before the Act came into force.

Conclusion: The receipt was dividend within section 2(6A)(a) and was taxable; the answer to the referred question was in the affirmative, against the assessee.

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