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TMI Blog1978 (7) TMI 63X X X X Extracts X X X X X X X X Extracts X X X X ..... to capital gains assessable as such ? " The questions above referred to arise out of two appeals of two brothers, which were separately disposed of by the Tribunal. The main order was passed by the Tribunal while disposing of the appeal in relation to the assessee, Mangesh J. Sanzgiri, and a consequential order was passed in the other matter. The facts of both the cases were the same, except that the number of shares held by the two assessees was not identical. For the sake of convenience, it would be sufficient if facts relating to the assessee, Mangesh J. Sanzgiri, are narrated. The assessee held seventeen fully paid up shares of a company by name, M/s. Sind Press Company Ltd. (hereinafter referred to as " the company "). On the date on which the company went into liquidation it had accumulated profits of about Rs. 3 lakhs, and the same were already distributed in the past years. The assets of the company like machinery, lands, etc., were sold some time in the year 1958 and the sale resulted in a surplus of Rs. 9,18,881. On May 11, 1961, the liquidator made a distribution at the rate of Rs. 1,000 per share. The distribution was made from the capital reserve account, to which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be restricted because of the provisions of s. 55(2)(i) of the Act, which had only a limited application. The expression " capital gains ", according to him, ought to be given its natural meaning which would include the capital gains arising to the company and not the capital gains assessed. He held that it would not be correct to contend that the " accumulated profits for the purpose of s. 2(22)(c) would include only the assessed profits. He, accordingly, confirmed the order of the ITO. In second appeal preferred before the Tribunal by the assessee, the Tribunal has held that the distribution from capital gains would be assessable as dividend in the hands of a shareholder only if the company itself had been assessed to capital gains tax. According to the Tribunal, the liability to pay tax by a shareholder is coextensive with the liability of the company to pay capital gains tax. The Tribunal felt that the view that has been taken by it was supported by legislative history. According to the Tribunal, if regard be had to the legislative history of the section it would appear that the capital profits made by a company and distributed by liquidators would, to that extent, give ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or not ;... Explanations 1.--The expression 'accumulated profits', wherever it occurs in this clause, shall not include capital gains arising before the 1st day of April, 1946, or after the 31st day of March, 1948, and before the 1st day of April, 1956....." The argument of Mr. Joshi is that as in the present case, we are not concerned with the capital gains accruing in the specific period in Expln. 1 above referred to, the taxing authorities, viz., the ITO and the AAC were right in taking the view which they did. The Tribunal, according to his submission, was not justified in referring to the provisions of s. 2(22)(c) along with those of the special provisions dealing with capital gains in s. 48 and the other sections. It is quite apparent from the provisions of Expln.1 that the words of " accumulated profits ", wherever it occurs in that clause, shall not include capital gains arising before April 1, 1946, or after March 31, 1948, and before April 1, 1956. For the purposes of the artificial categories of dividends which are created by the provisions contained in s. 2(22), " accumulated profits " do not include any capital gains, except those which are tax. able as such. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rved liberty to the ITO to determine the correct amount of dividend within the meaning of s. 2(6A)(c) of the Act. The view taken by the High Court was confirmed in appeal by the Supreme Court. It is pointed out in this judgment that by the Explanation to s. 2(6A)(c) "accumulated profits" include capital gains not arising within the excepted periods. The Explanation is undoubtedly couched in a negative form, but there is no ground for accepting the argument of counsel for the department that in the substantive clauses of the definition, accumulated profits do not include capital gains. The Explanation plainly implies that within the expression " accumulated profits " are included capital gains outside the excepted periods. On the interpretation contended for by counsel for the department, the Explanation which seeks to exclude "capital gains" from the content of accumulated profits would have no meaning. Thus, a contention which was sought to be urged on behalf of the revenue was rejected by the Supreme Court. The Supreme Court then considered the question whether capital appreciation in respect of the lands from which the income derived is agricultural income and which was not taxa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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