TaxTMI 
TaxTMI 
1963 (10) TMI 35
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....duct tax on such distribution. The Income-tax Officer by his letter dated 19th December, 1960, proposed to treat the sum of Rs. 8? lakhs so distributed as dividend falling within the meaning of section 2(6A)(c) in the hands of the shareholders. He called upon the liquidator to pay the amount of tax deductible under section 18(3)(d) of the Act. That this latter provision casts a liability on the payer to deduct tax on any distribution to the shareholders as dividend is not denied. The contention of the liquidator was and is that this distribution is not a dividend within the meaning of section 2(6A)(c). The objection raised by the liquidator was, however, overruled by the Income-tax Officer and he called upon the liquidator to pay over a sum of Rs. 4,11,700 as the tax due. The short contention of the petitioner, the liquidator representing the company, is that this distribution cannot be regarded as a dividend, that the liquidator is not bound to deduct and pay any tax, and that the view taken by the Income-tax Officer and the demand made by him are ex facie illegal and it is in these circumstances that a writ of prohibition is sought to restrain the Income-tax Officer from enforcin....
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....ver it occurs in this clause, shall not include capital gains arising before the first day of April, 1946, or after the 31st day of March, 1948, and before the first day of April, 1956." Mr. Ramaswami, learned counsel for the petitioner, contends that the expression "accumulated profits" had a clearly understood connotation. Firstly, he argues that capital gains of any description must also be left out. It is these contentions that require to be examined in some detail. Before doing so, we may refer to the various changes that were made in this sub-clause of section 2(6A). Before the amendment in 1955, this clause read: "Any distribution made to the shareholders of the company out of the accumulated profits of the company on the liquidation of the company. Provided that only the accumulated profits so distributed which arose during the six previous years of the company preceding the date of the liquidation shall be so included." It is immediately clear that this definition took into account only accumulated profits and even then only such accumulated profits as arose during the six previous years. The reference to the previous years obviously took out of ....
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....during the six accounting years preceding the liquidation. When the matter came before the High Court of Rajasthan, the reference was answered against the assessee, holding that the said sum was liable to be taxed as dividend within the meaning of that expression in section 2(6A)(c). Their Lordships of the Supreme Court had to consider the meaning of the expression "previous years" and the contention of the appellant that the profits had not been accumulated within the six previous years of the liquidation of the company. The appellant was a resident of Udaipur where there was not any law imposing a tax on income. It was under the Indian Finance Act, 1950, that the residents of the State of Udaipur became liable for the first time to pay tax on their income. The contention of the assessee before their Lordships of the Supreme Court was that as there was no year of assessment in relation to him, there could be no previous year and that, therefore, the years 1943-44 to 1948-49 cannot be held to be previous years, because the Income-tax Act came into force in the State only on the 1st April, 1950. Their Lordships accepted the contention on behalf of the department that the expression ....
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....efore its liquidation, whether capitalised or not". The use of the word "immediately" in this context cannot possibly be ignored. We believe that the reason why this word has been put in is to emphasise the position that all distribution made by the company on liquidation, except to the extent to which it might be otherwise dealt with, must be taken to be of accumulated profits, and if that is so, current profits which arose to the company during the accounting year up to the date of liquidation must necessarily form part of the accumulated profits referred to in the section. The next part of the contention of the petitioner hinges upon the Explanation to section 2(6A). This Explanation states that the expression "accumulated profits", wherever it occurs in this clause, shall not include capital gains arising before the first day of April, 1946, or after the 31st day of March, 1948, and before the first day of April, 1956. On the argument that the expression "accumulated profits" cannot include capital gains at all, we do not see eye to eye with the learned counsel. The Explanation is couched in the negative and it only excludes the capital gains arising before a particular date....