TMI Blog1965 (2) TMI 31X X X X Extracts X X X X X X X X Extracts X X X X ..... in September, 1934, the assets amounted to Rs. 11,72,762 10 as. 5 ps., whereas the liabilities were to the tune of Rs. 12,58,686 11 as. 5 ps. The official liquidator carried on the business of the company and he made up the loss and showed profit. In the balance-sheet ending 30th June, 1961, a profit of Rs. 3,79,316 . 30 nP. was shown. In or about June, 1961, the entire assets of the company were sold to the U.P. State Electricity Board for a sum of Rs. 13,80,096 . 00 nP. The official liquidator further states that he thus came in possession of two sums : the net profit of rupees three lakhs and odd and the sale price, totalling to Rs. 17,59,412 . 30 nP. Out of this amount the first dividend was declared and paid at the rate of rupees ten per share. The amount paid out as first dividend in all was Rs. 5,82,340. The first dividend included the amount of profit earned by the official liquidator. Under this court's order dated November 21, 1962, the second dividend was declared at the rate of rupees five per share totalling to Rs. 2,91,170. The official liquidator states in paragraph 5 of his report that the second dividend was declared out of the sale proceeds of the assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... winding up commenced. The company did make profits during liquidation, the total whereof amounted to Rs. 3,79,316.30 nP. The question is whether distribution of this profit is dividend so as to attract liability of deduction of tax at source. Chapter 17B of the Income-tax Act, 1961, deals with "deduction at source". Section 194 relates to dividends. This section imposes upon a company a liability to deduct income-tax and super-tax at the current rates from the amount of dividend before paying or distributing it. The dividend to which this liability is attached is dividend within the meaning of sub-clause ( a ) or ( b ) or ( c ) or ( d ) or ( e ) of clause (22) of section 2 alone. Before deduction at source can be made the dividend must conform to any one of these sub-clauses. Section 2(22) defines "dividend". This sub-section corresponds to section 2(6A) of the Income-tax Act, 1922. It may perhaps be not out place to recapitulate the legislative history of this provision. In the case of a company which made profits but did not distribute them to the shareholders but continued to keep it with itself from year to year, and distributed them later on, the distribution so made was di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case ( supra ). It was held that : "Now, it should be mentioned that when a company in liquidation distributes its current profits, that would also be not dividend as held in Burrell's case ( supra ) and the law to that extent has been left untouched by section 2(6A)( c )." The Supreme Court approved of the decision of the High Court mentioned above. It further observed[1959] 35 ITR 400 405 : "... accumulated profits which are sought to be caught in section 2(6A)( c ) would be the profits accumulated in the financial years preceding the year in which the liquidation takes place ... In the present case, as the company went into liquidation on January 18, 1950, excluding the current year which commenced on April 1, 1949, the six previous years will be the years 1943-44 to 1948-49." Thus the phrase "six previous years preceding the date of liquidation" was interpreted not to include the year in which the winding up commenced. By the Finance Act, 1955, the proviso to clause ( c ) was deleted. The result was that, with effect from and subsequent to the assessment year 1955-56, the limitation time of six years disappeared. But the position of current profits became obscure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quidation are excluded. The learned counsel for the income-tax department as well as for the official liquidator have urged that the word "liquidation" as well as the phrase "the date of liquidation" in these provisions do not refer to the commencement of the winding up proceedings but to the point of time when the company is ultimately liquidated. This point of time is in company law jurisdiction technically called the "dissolution" of the company. The liquidation and dissolution of a company mark different stages of its existence. Liquidation commences with the winding up of a company. When the affairs of a company have been completely wound up and finished, the court makes an order that the company be dissolved and the company stands dissolved from the date of that order (vide section 194, Indian Companies Act, 1913, and section 481, Companies Act, 1956). On the passing of the order of dissolution the company incurs a civil death and the very existence of the company comes to an end. The statutory duty of the liquidator to the creditors and contributories of the company finishes. No distribution of assets or profits is made thereafter. As such the date of liquidation under s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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