TaxTMI 
TaxTMI 
1966 (10) TMI 29
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....----------------- Rs. Rs. 1953-54 600 9- 9-1952 15,00,000 ,, 90 25- 9-1952 2,25,000 1954-55 60 10-11-1952 1,50,000 ,, 30 6- 5-1953 75,000 ,, 30 23- 2-1953 75,000 1955-56 80 10-11-1953 2,00,000 ------------------------------------------------------------------------------------------------------------------------------------------------- Out of the distribution made on September 9, 1952, the Income-tax Officer brought, in the assessment year 1953-54, to tax Rs. 52,400 as " dividend " within the meaning of section 2(6A)(c) of the Income-tax Act, 1922, as it then stood. On July 24, 1957, the liquidator distributed Rs. 30 per share among the shareholders. The Income-tax Officer, in the course of assessment for the year 1958-59, sought to bring the entire amount of Rs. 75,000 distributed to tax as " dividend " within the meaning of section 2(6A)(c) of the Income-tax Act as amended by the Finance Act, 1956. The objections raised by the liquidator were rejected and the amount was brought to tax. The Appellate Assistant Commissioner confirmed the order of the Income-tax Officer. In appeal to the Tribunal on behalf of the assessee, it was urged that the entire accumulated ....
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....mulated profits of the company immediately before its liquidation, whether capitalised or not. " By section 17(2) of the Indian Companies Act, 1913, regulation 97 of Table A was one of the obligatory regulations which had to be adopted in terms identical with or to the same effect in the articles of association of every company. Regulation 97 provided that " no dividend shall be paid otherwise than out of profits of the year or any other undistributed profits." Distribution of the profits of the year or of accumulated profits was, therefore, "dividend" within the meaning of the Companies Act, 1913, and also of the Income-tax Act, 1922. By Act 7 of 1939, an inclusive definition of "dividend" was devised, so as to include therein heads of distribution by a company which may not normally be regarded as dividend: and one such head was in clause (c). The reason for the insertion of the clause was that on the winding up of a company the distinction between the assets and undistributed profits disappears. It is well settled that a company as a going concern distributing profits of the year or accumulated profits is regarded as distributing dividend among the shareholders, but if the com....
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....: see Sheth Haridas Achratlal v. Commissioner of Income-tax. By the Finance Act, 1955, the proviso to clause (c) was deleted and in consequence thereof the limitation relating to the period during which the profits were accumulated ceased to apply in the determination whether the amount distributed by the liquidator was dividend. Even after the amendment by the Finance Act, 1955, the language of the clause was found to be somewhat inapt and the legislature, by the Finance Act, 1956, recast clause (c). The Tribunal was of the view that " if earlier any distribution has been made, but such distribution or part of such distribution has not been considered as dividend, then any subsequent distribution, if it is capable of being considered as dividend, must be so held to be so. " Shelat C.J. opined that section 2(6A)(c) is not a charging section which levies tax on a particular fund from out of which a limited fund is carved out by the proviso. The learned Chief Justice observed : "The legislative intent is clear, namely, to treat that portion of the amount distributed by the liquidator as chargeable as dividend which the income-tax department can trace to accumulated profits of the l....
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....l, the distribution is not taxable ; if it is accumulated profits, it is taxable. The language used by the legislature in section 2(6A)(c), as amended by the Finance Act, 1956, is fairly clear. There is in the hands of the liquidator only one fund. When a distribution is made out of the fund, for the purpose of determining tax liability, and only for that purpose, the amount distributed is disintegrated into its components---capital and accumulated profits---as they existed immediately before the commencement of liquidation. In any distribution made to the shareholders of a company by the liquidator, that part which is attributable to the accumulated profits of the company immediately before its liquidation, whether such profits have been capitalised or not, would be treated as dividend and liable to tax under the Act. The provision was intended to supersede the application of the principle of George Burrell's case, that is, to enact that even though on a winding up of a company the distinction between the assets and the accumulated profits disappears, the taxing authority may disintegrate the amount distributed into its component parts and determine the share attributable to acc....