TaxTMI 
TaxTMI 
1997 (2) TMI 2
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....holding that the sum of Rs. 7,28,760 representing profits assessed under section 41(2) in the preceding years cannot form part of the accumulated profits for the purpose of section 2(22)(c) of the Income-tax Act, 1961 ? " The Revenue has preferred the appeals from the common judgment rendered by the High Court of Madras dated March 9, 1979, reported as CIT v. T. S. Rajam [1980] 125 ITR 207. We heard counsel at some length. The main facts are not in dispute. The respondents are the assessees under the Income-tax Act. They were shareholders of a company known as "Tinnevelly Motor Service Company Private Ltd." The company carried on transport business. The Government took over all the vehicles owned by the company. The company went into ....
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....f "accumulated profits" within the meaning of section 2(22)(c) read with section 2(24) of the Act and any distribution out of such amount cannot be assessed in the hands of the shareholders as "deemed dividends". If at all, it represents only a capital receipt. The above decision was rendered placing reliance on the decisions of this court rendered in (1) CIT v. Bipinchandra Maganlal and Co. Ltd. [1961] 41 ITR 290 (SC) ; (2) CIT v. Express Newspapers Ltd. [1964] 53 ITR 250 (SC) and (3) Cambay Electric Supply Industrial Co. Ltd. v. CIT [1978] 113 ITR 84. The first two decisions were rendered with reference to section 10(2)(vii) of the Indian Income-tax Act, 1922. The said provision clearly created a legal fiction. The third decision was rend....
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....d that the income brought to tax under section 41(2) of the Act is one by way of restitution ; what had been written off (allowed) for the purpose of accounts, has later been made good by the increase in value. In particular, counsel stressed the following passage occurring at page 601 of the said decision : " It is writing back what was before written off ; and I cannot for myself see why, since the amount written off was treated as a deduction from profits in former accounts, the amount that is now written up should not be treated as profits in the same way. It seems to me to be not an accretion of principal, but a restitution of what was before taken away--taken away from profits, and therefore, a restitution to profits. " On the o....
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...., 1961. This later decision was rendered mainly placing emphasis on section 80E of the Income-tax Act, 1961. Incidentally, the language used in section 41(2) of the Act has also been referred to as a fiction. We are prima facie inclined to the view that when once a certain amount is treated as income under the Act, it should be so for all intents and purposes--and in all situations arising under the Act. Based on this approach, it will be difficult to hold that the receipt of excess on written down value on the sale of capital assets, is a "fictional income" and cannot form part of the profits. Once it is profit, it is so for all purposes, and any distribution made out of such an amount should be assessed in the hands of shareholders as div....