TMI Blog1965 (11) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... . It is true that power under section 35(10) may be exercised if accumulated profits are availed of by the company " for declaring dividends in any year ", but since the Companies Act does not in the matter of distribution of interim dividends set up any special machinery, nor impose any special condition before power in that behalf may be exercised, no artificial meaning can be attached to the word " declaring dividends ". Distribution of accumulated profits by the liquidator together with the income-tax refund certificate in the course of voluntary winding up may, therefore, for the purpose of section 2(6A)(c), be regarded as declaration of dividend. Appeal dismissed. - - - - - Dated:- 25-11-1965 - Judge(s) : K. SUBBA RAO., J. C. SHAH., S. M. SIKRI JUDGMENT The judgment of the court was delivered by SHAH J.----The appellant---a company registered under the Indian Companies Act, 1913---was assessed in the assessment years 1948-49 to 1953-54 in respect of the profits earned in its business, and was allowed rebate under the appropriate provisions contained in the Schedules to the relevant Finance Acts on the undistributed profits of the previous years. On December 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore April 1, 1952, was not exercisable by the Income-tax Officer under section 35(10) and consistently with that view withdrawal of rebate granted in the years ending on and before March 31, 1952, was unauthorised. In Ahmedabad Manufacturing and Calico Printing Co.'s case declaration of dividend by the company was made on April 20, 1953. The financial year in which the amount on which rebate of income-tax was allowed was availed of by the company for declaring dividends was 1953-54, and within four years from the end of that year an order calling upon the company to show cause why action should not be taken under section 35(10) to recall the proportionate part of the rebate was issued. It was said by Hidayatullah J. : "Since the power commenced on April 1, 1956, the utmost reach of the Income-tax Officer would be the end of the assessment year 1952. Any declaration of dividend after 1st day of April, 1952, out of accumulated profits of any of the years in which rebate was earned would be within the time for the recall of the rebate. But a declaration prior to April 1, 1952, would be beyond the power of the Income-tax Officer to recall." Power to with draw rebate was in that c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panies Act, 1956 (1 of 1956), the company does not stand dissolved. That is so expressly provided by section 487 of the Companies Act. A company which has resolved to be voluntarily wound up may be dissolved in the manner provided by section 497(5): till then the company has corporate existence and corporate powers. The property of the company does not vest in the liquidator: it continues to remain vested in the company. On the appointment of a liquidator, all the powers of the board of directors and of the managing or whole-time directors, managing agents, secretaries and treasurers cease (section 491), and the liquidator may exercise the powers mentioned in section 512, including the power to do such things as may be necessary for winding up the affairs of the company and distributing its assets. The liquidator appointed in a members' winding up is merely an agent of the company to administer the property of the company for purposes prescribed by the statute. In distributing the assets including accumulated profits, the liquidator acts merely as an agent or administrator for and on behalf of the company. It is then urged that on the commencement of winding up, distinction betw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e proviso thereto included only those accumulated profits which had not been capitalized, and which arose during the six previous years preceding the date of commencement of the year of account in which the liquidation commenced. By the Finance Act, 1955, the proviso to clause (c) was omitted: thereby accumulated profits whether capitalized or not and without any restriction as to time were brought within the definition. By the Finance Act, 1956, clause (c) was recast as follows: " 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 capitalized or not." Amendment to clause (c) in section 2(6A) was made and section 35(10) was inserted in the Income-tax Act simultaneously by the Finance Act, 1956. It would be reasonable to regard the provisions of section 35(10) and amended clause (c) of sub-section (6A) of section 2 as part of a single scheme to declare distribution of accumulated profits capitalized or not as dividends, and to bring the rebate granted on undistributed profits to tax if availed of by the company or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the company could be distributed (article 96). The only other relevant condition was in article 97 that no dividend shall be paid otherwise than out of profits of the year or any other undistributed profits. The liquidator of the appellant-company did from time to time distribute accumulated profits, and within the meaning of section 2(6A)(c) read with the provisions of the Companies Act, they were distribution of interim dividends. It is true that power under section 35(10) may be exercised if accumulated profits are availed of by the company " for declaring dividends in any year ", but since the Companies Act does not in the matter of distribution of interim dividends set up any special machinery, nor impose any special condition before power in that behalf may be exercised, no artificial meaning can be attached to the word " declaring dividends ". Distribution of accumulated profits by the liquidator together with the income-tax refund certificate in the course of voluntary winding up may, therefore, for the purpose of section 2(6A)(c), be regarded as declaration of dividend. The appeal therefore fails and is dismissed with costs. Appeal dismissed. - - TaxTMI - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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