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TMI Blog1966 (4) TMI 88X X X X Extracts X X X X X X X X Extracts X X X X ..... me as dividend under section 2 (6A) (c) of the Indian Income Tax Act ? The facts are that the assessee, D. D. Puri, held 395 shares in the Rupar Electric Supply Co. Ltd. The licence of this company expired on the 10th of November, 1952, and from that date the electrical undertaking was taken over the Punjab Government, the price fixed being ₹ 7,30,340. The company went into liquidation on the 28th of February, 1953. For the assessment year 1953-54, which covered the last year when the company was in business, the Income Tax Officer assessed the company's income at ₹ 2,67,357 after taking into account the profit of ₹ 2,61,256 under section 10 (2) (vii) of the Act on the sale price of the undertaking, and the ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts coffee estates and other assets in December, 1959, and gone into voluntary liquidation in February, 1960. The assets of the company were sold for ₹ 8,40,000 which the liquidator proposed to distribute among the shareholders, but the Income Tax Officer wanted to treat the amount as dividend and finally called on the liquidator to pay ₹ 4,11,700 which still remained in his hands to the department, and at that stage the liquidator had recourse to the Madras High Court with a petition under article 226 of the Constitution. The High Court issued a writ restraining the Income Tax Officer from enforcing the demand for tax, through the Income Tax Officer was given liberty to examine the question a fresh and determine the correct amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ganlal Co. Ltd. from which I quote the following passage in the head-note : In computing the profits and gains of a company under section 10 of the Act for the purpose of assessing the taxable income, the difference between the written down value it was sold (the price not being in excess of the original cost) is to be deemed to be profit in the year of account, and being such profit, it is liable to be included in the assessable income in the year of assessment. But this is the result of a fiction introduced by the Act. What in truth is a capital return is by a fiction introduced for the purposes of the Act as income. Because this difference between the price realised and the written down value is made chargeable to Income Tax, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The dispute arose principally about the sum of ₹ 1,570 specifically paid to the shareholder as repayment of capital gains, and in the reference made to the Gujarat High Court at the instance of the Commissioner, J. M. Shelat C.J. and P. N. Bhagwati J. held, largely on the strength of the decision in Bipinchandra Maganlal Co.s case, that the receipt of excess over written down value on sale of capital asset could not be held to be profit independently and apart from the legal fiction enacted in the second proviso to section 10 (2) (vii) and could not be regarded as dividend within the meaning of section 2 (6A) (c), and that legal fictions are created only for a definite purpose and they are limited to the purpose for which th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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