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Dhandhania Kedia And Company Versus Commissioner Of Income-Tax

1958 (10) TMI 11 - SUPREME Court

Whether the sum of ₹ 26,000 received by the appellant on April 22, 1950, is dividend as defined in section 2(6A)(c) of the Act? - Held that:- The sum of ₹ 26,000 received by the appellant on April 22, 1950, was dividend as defined in section 2(6A)(c) of the Act and is chargeable to tax. Appeal dismissed. - Dated:- 17-10-1958 - Judge(s) : A. K.SARKAR., GAJENDRAGADKAR., VENKATARAMA AIYAR JUDGMENT The judgment of the court was delivered by VENKATARAMA AIYAR, J.-This is an appeal aga .....

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mpany went into liquidation, and on April 22, 1950, the liquidator distributed a portion of the assets among the shareholders, and the appellant was paid a sum of Rs. 26,000 under this distribution. It is common ground that this sum represents the undistributed profits of the company which had accrued during the six accounting years preceding the liquidation. It should be mentioned that there was in the State of Udaipur no law imposing tax on income, and that it was only under the Indian Finance .....

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on April 22, 1950. By his order dated July 3, 1952, the Income-tax Officer held that this was dividend as defined in section 2(6A)(c) of the Act, and included it in the taxable income of the appellant in the year of account. The appellant took this order in appeal to the Appellate Assistant Commissioner who by his order dated January 12, 1953, confirmed the assessment. There was a further appeal by the appellant to the Appellate Tribunal, who also dismissed it on November 10, 1953. On the applic .....

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s judgment that the present appeal has been preferred on a certificate granted by the High Court under section 66A(2) of the Act. The sole point for determination in this appeal is whether the sum of Rs. 26,000 received by the appellant on April 22, 1950, is dividend as defined in section 2(6A)(c) of the Act. That definition, as it stood on the relevant date and omitting what is not material, was in these terms : (6A) dividend includes- (a) any distribution by a company of accumulated profits, w .....

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n in section 2(11), omitting what is not material, is as follows : Previous year means in respect of any separate source of income, profits and gains - (a) the twelve months ending on the 31st day of March next preceding the year for which the assessment is to be made... On these provisions, the contention of the appellant is that under the definition in section 2(6A)(c) the assets of a company distributed after it has gone into liquidation will be dividend only if they represented the profits t .....

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rsy is whether those years can be said to be previous. years within section 2(6A)(c) of the Act. The appellant contends that previous year as defined in section 2(11) of the Act means the year which is previous to the assessment year, that accordingly when there is no year of assessment, there can be no previous year, that construing the words six previous years in section 2(6A)(c) in the light of the definition of previous year in section 2(11) of the Act, the years 1943-44 to 1948-49 cannot be .....

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rities and by the learned judges in the court below is that the expression six previous years is used in section 2(6A)(c) not in the technical and restricted sense in which the words previous year are used in section 2(11) of the Act, and that, in the context, it means six consecutive accounting years preceding the liquidation of the company. The question is which of these two interpretations is the right one to be put on the language of section 2(6A)(c). The argument of Mr. Sharma for the appel .....

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the subject or context . Now, the appellant contends that the words unless there is anything repugnant are much more emphatic than words such as unless the subject or context otherwise requires , and that before the definition in the interpretation clause is rejected as repugnant to the subject or context, it must be clearly shown that if that is adopted, it will lead to absurd or anomalous results. And our attention was invited to authorities in which the above rules of construction have been l .....

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ar to a given year of assessment. When section 2(6A)(c) speaks of six previous years, it is obvious that it uses the expression previous year in a sense different from that which is given to it in section 2(11), because it would be a contradiction in terms to speak of six previous years in relation to any specified assessment year. It was argued that under section 13(2) of the General Clauses Act, 1897, words in the singular should be read as including the plural, and that, therefore, the defini .....

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ed as previous each to the next following year if that was itself a year of assessment, and that such a construction would, consistently with the contention of the appellant, give full effect to the definition in section 2(11) of the Act. But this argument overlooks that while there may be several preceding years to a given year of assessment there can be only one previous year in relation to it, and that it would make no sense to speak of six previous years with reference to a year of assessmen .....

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idend under section 2(6A)(a), but when a company which has so accumulated the profits goes into liquidation before declaring a dividend and the liquidator distributes those profits to the shareholders, it was held in Commissioners of Inland Revenue v. Burrell that such distribution was not a dividend because when once liquidation intervenes, there was no question of distribution of dividends, and all the assets of the company remaining after the discharge of its obligations were surplus divisibl .....

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in the former such profits would be dividend only in so far as they came out of profits accumulated within six years prior to liquidation. Now, the reason of it requires that those years must be a cycle of six years preceding the liquidation, and that is what is meant by the words previous years . It was argued for the appellant that if that was what was intended by the Legislature, that was sufficiently expressed by the words preceding the liquidation , and that the words previous years would b .....

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uched by section 2(6A)(c). And it has accordingly been held by the High Courts that the current profits of a company in liquidation which are distributed to the shareholders are not dividend within section 2(6A)(c), vide Appavu Chettiar v. Commissioner of Income-tax and Girdhardas & Co. Ltd. v. Commissioner of Income-tax. Therefore, accumulated profits which are sought to be caught in section 2(6A)(c) would be the profits accumulated in the financial years preceding the year in which the liq .....

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s contention that the expression previous years in section 2(6A)(c) is not to be interpreted in the sense in which the expression previous year is defined in section 2(11) of the Act. It is sufficient to refer to one of them, and that is the decision of this court in Commissioner of Income-tax v. K. Srinivasan and K. Gopalan. There, the point for decision was as to the interpretation to be put on the words end of the previous year in section 25, sub-sections (3) and (4), of the Act which dealt w .....

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ng year comprised of a full period of twelve months and usually corresponding to a financial year preceding the financial year of assessment. It also means an accounting year comprised of a full period of twelve months adopted by the assessee for maintaining his accounts but different from the financial year and preceding a financial year. For purposes of the charging sections of the Act unless otherwise provided for it is co-related to a year of assessment immediately following it, but it is no .....

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ccounting years of a company preceding the date of liquidation. The appellant sought to raise one other contention, and that is that the Indian Companies Act came into operation in the Udaipur territory on April 1, 1951, only by force of the Part B States Laws Act (III of 1951), that during the relevant period the Mewar Industries Ltd. was not a company as defined in section 2(5A) of the Act, and that therefore the distribution of assets made by that company on April 22, 1950, could not be held .....

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