Post-liquidation profits are not dividend under income tax law and no source deduction applies on such liquidation earnings.

Profits earned by a company after the commencement of winding up are current liquidation profits, not accumulated profits within the meaning of section 2(22)(c) of the Income-tax Act, 1961. The relevant date of liquidation is the commencement of winding up, not the later date of dissolution, so the extended definition of accumulated profits does not capture profits generated during liquidation. On that construction, such post-liquidation profits are not "dividend" and no deduction of income-tax or super-tax at source is permissible under section 194 in respect of them.

---

---

Issues: Whether profits earned by a company after commencement of liquidation are "dividend" within the meaning of section 2(22)(c) of the Income-tax Act, 1961, so as to attract deduction of tax at source under section 194 of that Act.

Analysis: The statutory scheme distinguishes accumulated profits existing before liquidation from profits earned during liquidation. Section 2(22)(c) and Explanation 2 to section 2(22) extend the meaning of accumulated profits only up to the date of liquidation, and the relevant date of liquidation was held to mean the commencement of winding up, not the later date of dissolution. Profits earned by the liquidator after winding up begins are therefore current profits of the liquidation period and do not fall within the dividend definition for tax deduction at source. Earlier authorities under the 1922 Act were treated as supporting this construction, and the later statutory language was read consistently with that position.

Conclusion: Profits earned during liquidation are not dividend and no deduction of income-tax or super-tax at source is permissible under section 194 of the Income-tax Act, 1961 in respect of such profits. The petition succeeds to that extent, though no direction was issued for refund of the amount already remitted.

---