TaxTMI 
TaxTMI 
1962 (12) TMI 85
X X X X Extracts X X X X
X X X X Extracts X X X X
....o the assessees were received by the assessees on 27th August, 1954. The following tabular statement shows the names of the assessees, the number of shares of the company held by them, the amounts received by them referable to the share capital, the amount received by them referable to capital profit, the amount of accumulated profits treated as dividend, the amount of total distribution and the amounts referable to accumulated profits of six previous years of the company preceding the date of liquidatio : S.No. Name of the assessee No. of shares Share capital capital profit Amount of accumulated profits treated as dividend Total distribution Amount of accumulated profits of past six years to be treated as dividend (1) (2) (3) (4) (5) (6) (7) (8) Rs. Rs. Rs. Rs. Rs. 1. Shri Gautam Sarabhai 138 74,455 48,391 84,591 2,07,365 6,200 2. Dr. Vikram A. Sarabhai 304 1,64,016 1,06,600 1,86,185 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s it stood before the amendment made therein by the Finance Act, 1955, ran as under : "2. (6A) 'dividend' includes - ........ (c) any distribution made to the shareholders of a company out of 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 liquidation, shall be so included." 4. By section 3 of the Finance Act, 1955, from the aforesaid sub-clause (c) the proviso was deleted. By section 20 of the Finance Act, 1955, the amendment to the Income Tax Act made by the aforesaid section 3 was to have effect on and from the 1st day of April, 1955. The contention urged before us related to the interpretation of section 2(6A)(c). The words used in the section are that any distribution made to shareholders of a company "out of accumulated profits of the company" on the liquidation of the company are liable to be regarded as dividend. It was urged by Mr. Palkhivala, learned counsel for the assessees, that once a company goes into liquidation, it is not possible to say that there were any assets in the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gment, observed that when the company capitalizes undivided profits and distributes them as capital, say as bonus shares, the shareholder does not bring into account for super-tax the Income Tax paid by the company thereon, so in the case of accumulated profits which have become surplus assets and are distributed and received as such. 5. Mr. Palkhivala is right when he contends that when a distribution is made by the liquidators of a company in liquidation, the distribution is made out of the assets of the company and that if the provisions contained in section 2(6A)(c) had not been enacted by the legislature, it was not possible to regard the dividend distributed by a liquidator out of the assets of the company in liquidation as a dividend for the purpose of taxation. As observed by the Supreme Court in the case Dhandhania Kedia & Co. v. Commissioner of Income Tax, it was to remove the anomalous situation which arose out of the decision in the case of Inland Revenue Commissioners v. George Burrell that the Indian legislature, following similar legislation by British Parliament in the year 1927, enacted section 2(6A)(c) in the year 1939. The question we have now to consider is w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lear that only the accumulated profits which have been distributed, on the liquidation of the company and which arose during the six previous years of the company preceding the date of liquidation are intended to be covered by the expression "dividend" as used by the legislature. When we read the provisions contained in sub-section (c) and the words used in the proviso, the intention of the legislature is clear that what was sought to be drawn into the net cast by the use of the word "dividend" was the distribution made to the shareholders of a company referable to accumulated profits of the company which arose during six previous years of the company preceding the date of liquidation. What the legislature intended to convey by the words "out of accumulated profits of the company" was to indicate the source from which the money distributed came. If the distribution is referable to the accumulated profits of the company, then such distribution would be a distribution covered by the expression "dividend". Even though it would not be proper to describe such distribution as a distribution made out of the accumulated profits of the company and it would not be possible on the winding up ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Tax, and the case Hariprasad Jayantilal & Co. Ltd. v. Income Tax Officer, Ahmedabad. It both these case, the provisions contained in section 2(6A)(c) came up for consideration before the court. There are general words used in both these decisions which support the case of the Advocate-General, but the precise point which has been raised before us was not raised in any of the said cases and those cases cannot be relied upon for the purpose of throwing light upon the questions which we have to deal with in the present case. In our view, the words "out of accumulated profits of the company" used in the section under construction merely refer to the source from which the moneys distributed by the liquidator of a company came, and even though, on the liquidation of a company, profits may shed their character as profits and the entire net assets of the company become a surplus fund in the hands of the liquidator of the company, the provisions of the section would be satisfied if, for the purpose of distribution to the shareholders, moneys distributed are attributable to this source. 10. The answer to the first question, therefore, will be that in respect of each applicant, the porti....