Reduction of share capital treats accumulated profits as dividend and the balance as capital gains on transfer. Reduction of share capital is treated as a distribution to shareholders that may constitute dividend to the extent of accumulated profits. Where capital is reduced and payment is made to shareholders, the extinguishment of rights in the shares amounts to a transfer, and the receipt is brought within the capital gains framework. The distribution is split between accumulated profits and capital, and the sale proceeds for capital gains are computed after deducting the amount deemed as dividend under section 2(22)(d).