TMI Blog1969 (7) TMI 2X X X X Extracts X X X X X X X X Extracts X X X X ..... ls claimed that the dividend distributed by the Ukhra Estate Zamindaries Ltd. was exempt from tax, because the fund out of which the dividend was distributed did not form part of the " accumulated profits " of the company. The Income-tax Officer rejected the contention and brought the dividend to tax in the hands of the respondents. The Appellate Assistant Commissioner held that Rs. 1,12,500 out of a total amount of Rs. 2,24,000 distributed by the company, represented capital gains arising to the company on or after April 1, 1948, and not being dividend within the meaning of section 2(6A) of the Income-tax Act, 1922, the share distributed to the shareholders out of that amount was exempt from income-tax. The order of the Appellate Assistant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anation .---The words 'accumulated profits', wherever they occur in the clause, shall not include " capital profit " : Provided further that the expression 'accumulated profits' wherever it occurs in this clause, shall not include capital gains arising before the, 1st day of April, 1946, or after the 31st day of March, 1948. " Dividend distributed by a company being a share of its profits declared as distributable among the shareholders is not impressed with the character of the profits from which it reaches the hands of the shareholders. It would be therefore difficult to hold that the mere fact that a distribution has been made out of the capital gains, it has the attributes of capital gains in the hands of the shareholders (sic). B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dividend in the popular connotation and to bring the share to tax in the hands of the shareholders is to nullify an express provision of the statute. We do not see any reason why such a strained construction should be adopted. We agree with the High Court that the proportionate share of the capital gains out of which the dividend was distributed to the shareholders of the company must be deemed exempt from liability to pay tax under section 12 as dividend income liable to tax. Counsel for the revenue sought to argue that the share of dividend which is not chargeable to tax by virtue of the exemption clause is still liable to tax as income other than dividend. But no such contention was raised before the Tribunal or the High Court and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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