Deemed dividend on liquidation distribution is limited to accumulated profits, with separate capital gains treatment for shareholders.

Distribution of assets to shareholders on liquidation is treated as deemed dividend to the extent attributable to accumulated profits immediately before liquidation, whether capitalised or not. The rule applies only where there is liquidation and a distribution to shareholders, and excludes shares issued for full cash consideration where the holder has no right to surplus assets. Accumulated profits include profits up to liquidation, with special treatment where liquidation follows compulsory acquisition. Fair market value on the date of distribution is relevant, and shareholders are also dealt with under capital gains provisions.

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