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TMI Blog1972 (9) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... require to be noticed are as follows : The assessees concerned in this reference are five individual assessees whose names appear in paragraph 2 of the statement of the case. In respect of the first two of the assessees, the question relates to the three assessment years, namely, 1955-56, 1956-57 and 1957-58. In respect of the other three assessees the question relates to the assessment year 1955-56. All the five assessees held certain different quantities of shares and in respect of these shares were shareholders of Messrs. Nakasero Trading Co. Ltd. (hereinafter referred to as " the foreign company ") of Jinja (Uganda) in East Africa. The foreign company was taken into liquidation in the year 1953. The liquidator of the foreign company di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal disappears and there is only one capital fund which the liquidator is called upon to distribute among the shareholders on realisation of the assets of the company ". It further proceeded to observe that " the foreign company if it had income assessable within the taxable territories would have been liable to pay income-tax in its character as a company ". It also observed : " Merely because the foreign company is not a company for the purpose of the Indian Income-tax Act, it does not further necessarily follow that the amount distributed by the liquidator among the shareholders changes its character. " Following the principles in the case of Commissioners of Inland Revenue v. Burrell, it held that the amounts distributed were not income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... persons. He then pointed out that under section 14(2)(b) the assessees in the present case were exempted from payment of tax in respect of the amount received by them from the above foreign company if the company had already paid tax on the amount distributed to and/or received by the assessees as members of the company. He then relied upon the admitted fact that in respect of the amount distributed to the assessees the foreign company had not paid any tax. He, therefore, submitted that the amounts distributed by the liquidator of the foreign company to the assessees should be held to be income received by the assesees and that these amounts as income received into India (the taxable territories) were charged with liability to pay income-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar that for taxing the amounts distributed by the liquidator of the foreign company to the assessees shareholders in the present case the only relevant section that was applicable was section 4(1)(b)(iii), which provides as follows : " 4. (1) Subject to the provisions of this Act, the total income of any previous year of any person includes all income, profits and gains from whatever source derived which- ...... (b) if such person is resident in the taxable territories during such year -..... (iii) having accrued or arisen to him without the taxable territories ..... are brought into or received in the taxable territories by him during such year." The only substantial and significant question which arose in connection with charging th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ip of the company. Apparently, the shareholders would have no relation whatsoever with the business carried on by the company except as shareholders. The business would not be carried on by the shareholders. If anything, if the amounts distributed by reason of the law of liquidation by the liquidator amongst the shareholders are in value in excess of the investments made by the shareholders for purchasing their holdings, they would be capital gains made by reason of the investments. This is made apparent when under section 2(6A)(c) " dividend " is defined to include " any distribution made to the shareholders of a company on its liquidation, to the extent to which the distribution is attributable to the accumulated profits of the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " At page 41, he further observed : " The quota returned to the shareholder is returned to him as that part of the property of the company to which he is entitled, by the officer whose duty it is to distribute the 'property of the company' in accordance with section 186 of the Companies Act, 1908. That officer does not carry on the company as the directors did ; and he has no longer the power that they had, to divide the profits as dividend upon the shares-profits to which, in that character, the shareholder had no right to lay a demand. " Lord Justice Atkin also delivered a confirming judgment. Section 14 on which reliance is placed on behalf of the revenue has no bearing whatsoever on the above relevant question. The section relates ..... X X X X Extracts X X X X X X X X Extracts X X X X
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