TMI Blog1992 (9) TMI 59X X X X Extracts X X X X X X X X Extracts X X X X ..... he managing director. The amount was given and an amount of Rs. 7,000 was also paid as gift-tax. When the company went into voluntary liquidation subsequently, the assessee was appointed as the liquidator. He received an amount of Rs. 1,677 as the balance of the accumulated profits left with the company. An amount of Rs. 1,560 was also available with him as the balance in the development rebate reserve. While completing the assessments for the years 1974-75 and 1975-76, the Income-tax Officer proposed to treat the amount of the gift as well as the gift-tax paid thereon, totalling Rs. 82,000, as accumulated profits available with the company at the time of winding up, for the purpose of computing dividend " under section 2(22)(c) of the Act. His reasoning was as follows : "Under the provisions of section 531A of the Companies Act, 1956 any transfer of property, whether movable or immovable, if made within a period of one year before the presentation of a petition for winding up of a company shall be void. Hence, the action of the company in making a cash gift to a close relative of the managing director (who later on was appointed as the liquidator also ) and paying gift-tax the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Appellate Tribunal, and the amount treated as accumulated profits in the hands of the liquidator. Section 2(22)(c), on which reliance has been placed by the Tribunal and by the assessing authority, reads : "2. Definitions. - In this Act, unless the context otherwise requires, (22) 'dividend' includes -.... (c) 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 immediately before its liquidation, whether capitalised or not;" We are omitting the other sub-clauses of the sub-section as also the Explanations thereto as no reliance has been placed thereon by either party. It will be seen from sub-clause (c) that for a payment to be dividend under this provision, it should be a distribution on liquidation, attributable to the accumulated profits of the company immediately before its liquidation, whether capitalised or not. The distribution itself should be among the shareholders of the company on its liquidation, and is, therefore, necessarily, a post-liquidation distribution. A few more facts may be stated before coming to the discussion of the merits of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies Act bears the effect and the construction which the Income-tax Officer and the Tribunal have placed on it, of rendering the gift of Rs. 75,000 non est and void. We are afraid that both these authorities have misunderstood the scope and effect of section 531A in treating the gift as non est and void. Section 531A reads "531A. Avoidance of voluntary transfer.Any transfer of property, movable or immovable, or any delivery of goods, made by a company, not being a transfer or delivery made in the ordinary course of its business or in favour of a purchaser or encumbrancer in good faith and for valuable consideration, if made within a period of one year before the presentation of a petition for winding up by or subject to the supervision of the court or the passing of a resolution for voluntary winding up of the company, shall be void against the liquidator. " The section forms part of a series of sections relating to the effect of the winding up on certain antecedent transactions of which we will refer to only three. Section 531 deals with fraudulent preference namely, transfers of property, movable or immovable, and the like made on the eve of the winding up of a company with a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... void against the trustee in bankruptcy ", in section 47 of the English Bankruptcy Act, 1883, as also Mariappa Pillai v. Raman Chettiyar [1919] ILR 42 Mad 322 ; AIR 1919 Mad 161, and Rukhmanbai v. Govindram, AIR 1946 Nag 163, besides analogous provisions in section 54 of the Provincial Insolvency Act, 1920, and section 64 of the Code of Civil Procedure, 1908, and observed (at page 168) : "The expression is often used : 'void as against' a person or persons. In strict terminology, a thing cannot be void and valid at the same time. As 'void' denotes a nullity, a thing which is void must be a nullity for all. It is totally non-existent. Therefore, 'void as against A' can mean only that A can treat it as void ; or, in other-words, A can avoid it. It is, strictly speaking, voidable at the option of A. . . . It is thus clear that the use of the expression 'void as against the tarwad' means only that the involved transaction is 'voidable by the tarwad ', and not void as regards the tarwad. If a transaction by the karnavan is not a nullity and is not challengeable by any other than the members of the tarwad, in strict legal terminology we must say it is voidable at the instance of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot choose or find it necessary to avoid a particular transfer, or to recover the property concerned, it is not open to a stranger like the Income-tax Officer to ignore it and treat the transferred asset as remaining with the liquidator relying on section 531A. The assessing authority and the Tribunal are not entitled to ignore the gift to the managing director's daughter and treat the amount notionally as accumulated profits in the hands of the liquidator. The amount which did not reach the liquidator at any time cannot be treated as accumulated profits in his hands for the purpose of section 2(22)(c) of the Act, by applying section 531A. We cannot agree with the contention that section 531A nullifies the transfer against the whole world, and not merely against the liquidator. In this view of the matter, the amount of Rs. 75,000 which had been distributed by the company before the resolution for winding up was not an amount available with the liquidator for distribution and, in the absence of this amount as accumulated profits with the liquidator, there could be no scope for imputing any distribution of notional accumulated profits by the liquidator under section 2(22)(c). We sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liquidator for distribution. The decision of the Tribunal is therefore unsustainable. But, counsel for the Revenue refers to the order of assessment for the year 1974-75 and points out that the Income-tax Officer has treated a portion of the amount of Rs. 46,200 distributed out of realisation of the assets in liquidation as dividend and assessed it as such. According to counsel, this is a finding of fact which has not been upset by the Tribunal and, therefore, it is binding on this court in the absence of any challenge by the assessee. We find absolutely no substance in this contention. The very question debated before the authorities was whether the amount of Rs. 75,000-plus Rs. 7,000 constituted accumulated profits in the hands of the liquidator. It was only in that context that the Income-tax Officer worked out the proportionate dividend for each year. This was on the basis of his conclusion that the amount of Rs. 82,000 was accumulated profits in the hands of the liquidator. When the conclusion is found unsustainable in law, the consequent working out of the taxable dividend for each year also falls. There is no question of its binding this court as an unchallenged question of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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