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TMI Blog1972 (9) TMI 32X X X X Extracts X X X X X X X X Extracts X X X X ..... essee-shareholders were liable to be assessed in respect of the amounts received from the liquidator of the foreign company under section 4(1)(b)(iii) read with section 14(2)(b) of the Indian Income-tax Act, 1922 ? " The facts which require to be noticed are as follows : The assessees concerned in this reference are five individual assessees whose names appear in paragraph 2 of the statement of the case. In respect of the first two of the assessees, the question relates to the three assessment years, namely, 1955-56, 1956-57 and 1957-58. In respect of the other three assessees the question relates to the assessment year 1955-56. All the five assessees held certain different quantities of shares and in respect of these shares were shareh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e- tax were consolidated and the Income-tax Tribunal by its judgment and order dated 9th August, 1963, dismissed these appeals. The Tribunal held that " as soon as liquidation of a company starts, all distinction between revenue and capital disappears and there is only one capital fund which the liquidator is called upon to distribute among the shareholders on realisation of the assets of the company ". It further proceeded to observe that " the foreign company if it had income assessable within the taxable territories would have been liable to pay income-tax in its character as a company ". It also observed : " Merely because the foreign company is not a company for the purpose of the Indian Income-tax Act, it does not further necessarily ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany and local authority and of every firm and other association of persons or the partners of the firm or the members of the association individually ". He emphasised that the foreign company would, under section 3, be an association of persons. He then pointed out that under section 14(2)(b) the assessees in the present case were exempted from payment of tax in respect of the amount received by them from the above foreign company if the company had already paid tax on the amount distributed to and/or received by the assessees as members of the company. He then relied upon the admitted fact that in respect of the amount distributed to the assessees the foreign company had not paid any tax. He, therefore, submitted that the amounts distrib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in section 2(5A) as not to include a foreign company and that as regards charging the foreign company to tax under section 3, the company would be an association of persons, had the result of creating confusion only. It is abundantly clear that for taxing the amounts distributed by the liquidator of the foreign company to the assessees shareholders in the present case the only relevant section that was applicable was section 4(1)(b)(iii), which provides as follows : " 4. (1) Subject to the provisions of this Act, the total income of any previous year of any person includes all income, profits and gains from whatever source derived which- ...... (b) if such person is resident in the taxable territories during such year -..... (iii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... solvent companies, in liquidation thereof the shareholder may by chance get certain amounts by the payments and distributions made by the liquidator. Apparently, the amounts distributed would represent the proceeds of the assets of the ownership of the company. Apparently, the shareholders would have no relation whatsoever with the business carried on by the company except as shareholders. The business would not be carried on by the shareholders. If anything, if the amounts distributed by reason of the law of liquidation by the liquidator amongst the shareholders are in value in excess of the investments made by the shareholders for purchasing their holdings, they would be capital gains made by reason of the investments. This is made appar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. These facts must be faced and due weight given to the considerations which arise from them . . . . . Further, it is a misapprehension, after the liquidator has assumed his duties, to continue the distinction between surplus profits and capital. " At page 41, he further observed : " The quota returned to the shareholder is returned to him as that part of the property of the company to which he is entitled, by the officer whose duty it is to distribute the 'property of the company' in accordance with section 186 of the Companies Act, 1908. That officer does not carry on the company as the directors did ; and he has no longer the power that they had, to divide the profits as dividend upon the shares-profits to which, in that character, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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