Commissioner Of Income-Tax, Gujarat v. Girdhardas & Company Private Ltd

COMMISSIONER OF INCOME-TAX, GUJARAT GIRDHARDAS & COMPANY PRIVATE LTD. October 7, 1966 B (J.C. SHAH, V. RAMASWAMI AND V. BHARGAVA, JJ.] Indian Income-tax Act, 1922, s. 2(6A)(c)-Distribution of accumulared profits on liquidation of company to be treated as dividend--Extent I<> which distribution represents accumulated profit, how to be detennined. c By a resolu•ion dated August 23, 1952 it was resolved to wind up the respondent company and to appoint a liquidator for that purpose. The paid-up capital of the assessee was Rs. 25 lakhs; and on the: date of toro-mencement of winding up it had an accumulated profit of Rs. 5,34,041. From time to time the liquidator -distributed the assets in his hands an1ong the shareholders. Out of Rs. 15 lakhs distributed 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 s. 2(6A)(c) of the Income-D tax Act 1922 as it then stood. By virtue of an amendment of the said clause as effected by the Finance Act 1956 dividend was to include any distribution made to the sharehnlders of a company on its liquidation, to tbe extent to which the distribution is attributable to the accumulated profits of the company immediately before its iiqui<lation whether capitalised or not. On July 24, 1957, the hquidator distributed Rs. 75,000 among the share-· holders. The Income~tax Officer in the course of assessment for the year 1958-59 sought to bring the entire amount so distributed to tax as 'divi-E dend'. The Appellate Assistant Commissioner confirmed the order of tho Income-tax Officer. In appeal to the Tribunal it was urged on behalf of the assessee that when Rs. 15 lakhs were distributed on September 3, 1952 and Rs. 2 lakhs 25 thousand on September, 25, ·19)2 the entire accumulat-ed profit was exhausted and thereafter there were no accumulated profit-; which could be distributed, and that in any even.t whenever distribution· is made of the assets in the hands of the liquidator, accumulated profits }I and the capital mu~~ be deemed to be &stributed in the same propor· ion in which the accumulated profits and the capital stood on the date of tho liquidation. The Tribunal rejected the first contention and did not considef' the setond. In reference the High Court held that since the Tribunal had not disintegrated Rs. 75,000 distributed for ascertaining whether any part of it came out of the accumulated profits, no part of R,. 75.J)OO could be regarded as dividend. The Revenue appealed. HELD: The language used by the Legislature in s. 2(6A) (c) a~ amended by the Finan.ce 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 pur-pose, the amount distributed is disintegrated into its components-capital .and accumulated profits-as they existed immediately before the commence• ment -0f liquidation. In any distribution made to the shareholders of a. company by the liquidator, that part which is attributable to •he accumu .. lated profits of the, compa~y immediately before its liguidation, whether· such profiti have been cap:.talised or not, would be treated as dividend and liab]e to tax under the Act. The amount distributed would therefore be deemed to be received by the shareholders partly as accumulated pro-Ml7Sup. C!/66--5