1961 (1) TMI 73 - HC - Income Tax

Summary

Issues Involved:

1. Interpretation of Section 35(10) of the Income-tax Act.
2. Applicability of Section 35(10) to distributions by a liquidator.
3. Retrospective operation of Section 35(10).
4. Definition and scope of "dividend" under Section 2(6A) of the Income-tax Act.

Analysis:

1. Interpretation of Section 35(10) of the Income-tax Act:

The core issue in this case revolves around the interpretation of Section 35(10) of the Income-tax Act. The petitioner company argued that Section 35(10) should only apply to dividends declared by the company itself and not to distributions made by a liquidator. The court examined the language of Section 35(10) and noted that it deals with the rebate granted in respect of assessment years beginning from April 1, 1948, to 1955. The court emphasized the need to interpret the provision in light of its clear scope and application.

2. Applicability of Section 35(10) to distributions by a liquidator:

The petitioner contended that Section 35(10) does not apply to distributions made by a liquidator, as such distributions are not "declarations of dividend" by the company. The court, however, disagreed with this interpretation. It referred to the definition of "dividend" under Section 2(6A) of the Act, which includes any distribution made to shareholders out of accumulated profits on the liquidation of the company. The court held that the definition of "dividend" under Section 2(6A) should be applied in interpreting Section 35(10), and thus, distributions by a liquidator fall within the ambit of Section 35(10).

3. Retrospective operation of Section 35(10):

The petitioner argued that Section 35(10) should not have retrospective operation as it was incorporated into the Act from April 1, 1956. The court referred to a previous decision in New Shorrock Spinning and Manufacturing Co. Ltd. v. Income-tax Officer, Special Circle, Ahmedabad [1959] 37 I.T.R. 41, where it was held that Section 35(10) applies to undistributed profits of previous years. The court reiterated that Section 35(10) is clear in its scope and application and operates despite the doctrine of finality of assessments. Hence, the contention relating to the retrospective operation of Section 35(10) was rejected.

4. Definition and scope of "dividend" under Section 2(6A) of the Income-tax Act:

The court examined the definition of "dividend" under Section 2(6A) of the Act, which includes any distribution made to shareholders out of accumulated profits on the liquidation of the company. The petitioner argued that this definition should not be incorporated into Section 35(10) as it would result in repugnancy. The court, however, found no reason to exclude the definition of "dividend" under Section 2(6A) while interpreting Section 35(10). It held that the definition of "dividend" in Section 2(6A) should be applied in its entirety, and there is no repugnancy in applying it to Section 35(10).

Conclusion:

The court dismissed the petition, holding that Section 35(10) applies to distributions made by a liquidator and that the definition of "dividend" under Section 2(6A) should be applied in interpreting Section 35(10). The court also rejected the contention regarding the retrospective operation of Section 35(10). As a result, the Revenue's claim for the rebate amount under Section 35(10) was upheld, and the petition was dismissed with costs.