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Issues:
- Taxation of sum of Rs. 31,250 received by the assessee on the liquidation of a company. Analysis: The case involved the taxation of Rs. 31,250 received by the assessee on the liquidation of a company where the assessee held ten shares of the face value of Rs. 8,750. The Tribunal held that the amount was "dividend" falling under section 2(6A)(c) of the Income-tax Act. Additionally, the Tribunal considered the amount as capital gains taxable under section 12B, which was deemed more favorable to the assessee. However, it was noted that section 12B would not apply to the amount received by the assessee as it was the result of the sale of the company's capital assets, not the assessee's personal capital assets. The crucial provision in question was section 2(6A)(c) of the Income-tax Act, which defines dividend to include distributions made to shareholders out of accumulated profits of the company on liquidation. The proviso to this section specifies that only accumulated profits from the six previous years preceding the date of liquidation shall be included. The Court refrained from deciding whether the amount received by the assessee constituted dividend under this provision. However, it was highlighted that if the distribution by the liquidator was out of accumulated profits of the company, the proviso should exclude the amount in the assessment year in question. The Court's interpretation aligned with the principle established in a previous case by Chagla, C.J., and Tendolkar, J., where the significance of the expression "six previous years of the company preceding the date of liquidation" was correctly defined. The judgment concluded in favor of the assessee, emphasizing that any distribution out of accumulated profits of the company in the six previous accounting years prior to the liquidation date would fall within the scope of the provision.
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