9911796707
TMI Blog1962 (12) TMI 85X X X X Extracts X X X X X X X X Extracts X X X X ..... assessees on 27th August, 1954. The following tabular statement shows the names of the assessees, the number of shares of the company held by them, the amounts received by them referable to the share capital, the amount received by them referable to capital profit, the amount of accumulated profits treated as dividend, the amount of total distribution and the amounts referable to accumulated profits of six previous years of the company preceding the date of liquidatio : S.No. Name of the assessee No. of shares Share capital capital profit Amount of accumulated profits treated as dividend Total distribution Amount of accumulated profits of past six years to be treated as dividend (1) (2) (3) (4) (5) (6) (7) (8) Rs. Rs. Rs. Rs. Rs. 1. Shri Gautam Sarabhai 138 74,455 48,391 84,591 2,07,365 6,200 2. Dr. Vikram A. Sarabhai 304 1,64,016 1,06,600 1,86,185 4,56,801 13,658 3. Smt. Bharati Sarabhai 70 37,767 24,546 42,872 1,05,185 3,145 4. Smt. Leena A. Sarabhai 70 37,767 24,546 42,868 1,05,181 3,145 5. Smt. Geeta Mayor 70 37,767 24,546 42,868 1,05,181 3,145 6. Smt. Gira Sarabhai 69 37,767 24,546 42,260 1,03,682 3,100 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of section 2(6A)(c). The words used in the section are that any distribution made to shareholders of a company "out of accumulated profits of the company" on the liquidation of the company are liable to be regarded as dividend. It was urged by Mr. Palkhivala, learned counsel for the assessees, that once a company goes into liquidation, it is not possible to say that there were any assets in the hands of the liquidator which could be regarded as constituting accumulated profits of the company. He urged that upon the liquidation of a company, profits shed their character as profits and the entire net assets of the company become a surplus fund in which the element of profit as distinguished from capital, did not exist. he further urged that since the section charges only the post-liquidation distribution which has been made out of accumulated profits, the legislation has misfired, because no such profits can be said to exist after such liquidation. Strong reliance in support of this contention has been placed upon a decision in the case of Inland Revenue Commissioners v. George Burrell. In that case, on the winding up of a company, distribution was made by the liquidat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rved by the Supreme Court in the case Dhandhania Kedia & Co. v. Commissioner of Income Tax, it was to remove the anomalous situation which arose out of the decision in the case of Inland Revenue Commissioners v. George Burrell that the Indian legislature, following similar legislation by British Parliament in the year 1927, enacted section 2(6A)(c) in the year 1939. The question we have now to consider is whether the legislature has carried out its intent in an effective manner by the way in which section 2(6A)(c) has been enacted. We have to read the provisions contained in section 2(6A)(c) as a whole. Reading the section as a whole, it is clear that what the legislature intended to hit at was a distribution made to the shareholders of a company which is referable to accumulated profits which arose during the six previous years of the company preceding the date of liquidation. The language used in sub-section (c) of section 2(6A), namely, "distribution made to the shareholders of a company out of accumulated profits of the company", is not apt. Once a company goes into liquidation, all the assets of the company go into the hands of the liquidator and it is out of these a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accumulated profits of the company" was to indicate the source from which the money distributed came. If the distribution is referable to the accumulated profits of the company, then such distribution would be a distribution covered by the expression "dividend". Even though it would not be proper to describe such distribution as a distribution made out of the accumulated profits of the company and it would not be possible on the winding up of a company to say that any distribution has been made by the liquidator out of the accumulated profits of the company, the legislative intention is clear and leaves no room for doubt that what was intended to be covered was a distribution referable to the accumulated profits of the company of the previous six years of the company preceding the date of liquidation. 6. Reliance was placed by Mr. Palkhivala upon the observations of Bhagwati J. in the in the Supreme Court case at page 661, A.V. Fernandez v. State of Kerala. Justice Bhagwati in that case has observed as under : "It is no doubt true that in construing fiscal statutes and in determining the liability of a subject to tax one must have regard to the strict letter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd even though, on the liquidation of a company, profits may shed their character as profits and the entire net assets of the company become a surplus fund in the hands of the liquidator of the company, the provisions of the section would be satisfied if, for the purpose of distribution to the shareholders, moneys distributed are attributable to this source. 10. The answer to the first question, therefore, will be that in respect of each applicant, the portion of the amount received by the applicant from the liquidator of the Kawampe Cotton Co. Ltd., which is referable to the accumulated profits of the company, is taxable as dividend by virtue of section 2(6A)(c) of the Indian Income Tax Act. 11. We shall now proceed to deal with the second question that has been raised. The answer to that question depends upon whether the amendment made in the definition of the expression "dividend" in section 2(6A)(c) by the Finance Act, 1955, is applicable to the facts of the case. The question in short is whether the definition as it stood after the amendment made by the Finance Act, 1955, is applicable, or the definition as it stood immediately prior thereto, is applicable. By the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
