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TMI Blog1956 (8) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... r, 1952. 3. Undistributed profits for six years ending 30th September, 1951, amounted to ₹ 50,500 and were available with the liquidator for distribution. In the assessment year 1949-50 a sum of ₹ 21,142 was assessed to tax in the hands of the assessee company under section 23A of the Income-tax Act. This amount was held by the Income-tax Authorities to be deemed to be income of the assessee. The assessee company had never received it. The Income-tax Authorities also treated this amount as the sum available for declaring dividend out of profits. The Tribunal disagreed with that view and held that as this amount was never received by the assessee company, it could not be available with the liquidator for the purpose of declaring the dividend to the shareholders. 4. The second contention of the assessee was that the profit of ₹ 98,000 which accrued to the assessee from the commencement of the year of account up to the date of liquidation could not form part of the accumulated profits under the proviso to section 2(6A)(c). Reliance was placed on the decision of the Bombay High Court where it has been held that six years means six complete previous years. The Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e-tax Officer computed the excess dividend of ₹ 95,409 and the excess tax at ₹ 5,963. 7. The Tribunal modified the order of the Income-tax Officer in the following manner: Rs. The total profit available for distribution of dividend 99,968 Profit of the year 1,10,216 Tax thereon would be 48,220 The excess profit distributed by the company therefore would be ₹ 99,968 less ₹ 61,996 37,972 Tax thereon @ 1 anna in the rupee would be 2,373 The Tribunal directed that the excess tax to be charged as provided in the Finance Act would be ₹ 2,373, and against ₹ 5,963 computed by the Income-tax Officer. 8. The assessee contended that the profit of ₹ 98,000 of the year of account should not be considered to have been distributed as dividend by the liquidator. According to the assessee the total profit which could be held to have been declared as dividend could not exceed ₹ 50,500. As this amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carry on the business for a number of years. That does not mean that such income is not liable to tax or could not be treated as dividend in the hands of the shareholders. If sub-section (6A)(c) was not enacted, the position would have been exactly the same on the appointment of the liquidator as it was before the date of the liquidation. The Legislature, however, wanted to restrict the profits which could be treated as dividend in the case of company which goes into liquidation. It was, therefore, provided that in the case of liquidation the profits could only be taxed up to 6 years prior to the date of the liquidation. In the year in which the liquidation takes place the profits will have to be assessed in the hands of the liquidator and would be covered by sub-section (6A) and that will be a distribution made by a company out of the profits of that year. There could be no question of excluding the profits of the broken period ending with the date of the liquidation as not available for the purpose of dividend. The Bombay High Court has held that the 6 years exemption is in respect of the six preceding years prior to the year in which the liquidation occurs. The restriction, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company went into liquidation on the 23rd August, 1952. Its accounting year ended on the 30th September, 1952, and we are concerned with the assessment year 1953-54. Prior to liquidation the profits made by the company were ₹ 98,000. The accumulated profits of the company for six years prior to its previous year were ₹ 50,500, and the Income-tax Officer in computing its profits also included a sum of ₹ 21,142 which was a notional profit under section 23A of the Income-tax Act. Now, the liquidator distributed ₹ 15,00,000 to the shareholders on the 9th September, 1952, and ₹ 2,25,000 on the 25th September, 1952, and the question that arose was whether in making this distribution he had distributed ₹ 98,000 as part of the dividend of the company which was liable to tax as dividend. There was no dispute as to the sum of ₹ 50,500. It was conceded by the company that that amount fell within the definition of dividend in section 2(6A)(c). With regard to the notional dividend of ₹ 21,142 the Tribunal overruled the contention of the Department and held that as the income was only notional it was not available for distribution and theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to us that on the clear language used by the Legislature it is not possible to take any other view of this sub-section. What is urged by Mr. Joshi is that the definition of dividend in section 2(6A) is an inclusive definition and not an exhaustive definition and therefore if he could satisfy us that what is distributed is dividend independently of section 2(6A) he must succeed. In a sense the definition of dividend in section 2(6A) gives to dividend an extended meaning. It constitutes something which is not dividend as artificial dividend and therefore Mr. Joshi is right that if any particular distribution can fall within the ordinary meaning of dividend , the definition given in section 2(6A) will not exclude that distribution from being dividend. But can it possibly be said that under the ordinary meaning of dividend what the liquidator distributed was dividend? It is well-settled law that when a company goes into liquidation, the distinction between capital and profits disappears and everything that the liquidator distributes is the assets of the company which is in liquidation. Therefore, if we exclude the definition under section 2(6A) under the ordinary law what th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly gets this money in that character and that money no longer bears the character of profits which are liable to tax; and it was because of this view that the Court held that the surplus assets on liquidation distributed to a shareholder were not liable to income-tax. We also pointed out that it was because of this decision that the Legislature incorporated sub-clause (c) in section 2(6A) of the Income-tax Act. We find that the Madras High Court has taken the same view as we took of the law in T. Appavu Chettiar v. Commissioner of Income-tax [1956] 29 I.T.R. 768 and the decision of the Madras High Court is directly in point because they held that assuming that the distribution by the liquidator was out of accumulated profits of the company, the proviso to sub-clause (c) of section 2(6A) excluded the profits which accrued to it in its year of account ending with 31st March, 1947. The view, therefore, of the Madras High Court was that current profits could not be included in the expression accumulated profits used in section 2(6A)(c), and if current profits were distributed they did not constitute dividend. Mr. Joshi says that there is no reason or logic why profits of the curre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ference. But it may happen that if the Court takes a particular view on the reference asked for by the losing losing party, certain other questions of law may arise which may have to be decided in the interest of the winning party. Therefore, it would not be proper to shut out a party before the Tribunal from raising a question of law which clearly arises from the order of the Tribunal merely because it so happens that it has not made an application for a a reference. In this particular case, undoubtedly, the Commissioner could have made an application for a reference, but there may be cases, as we have just pointed out, where the Commissioner could not have made an application for a reference because he had won before the Tribunal. We therefore overrule the preliminary objection taken by Mr. Palkhivala. Coming to the question raised by the Commissioner, which deals with the sum of ₹ 21,142 to which reference has been made, in our opinion, the Tribunal was right in the view that it took that that amount cannot be considered to have been distributed when the distribution was made by the liquidator, and therefore that amount cannot possibly bear the impress of dividend in any v ..... 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