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TMI Blog1965 (12) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. Realization of appreciated value of assets in commercial practice is regarded as realization of capital rise, and not of profits of the business. Unless, therefore, appreciation in the value of capital assets is included in the capital gains, distribution by the liquidator of the rise in the capital value will not be deemed dividend for the purpose of the Income-tax Act. Appeal dismissed. - - - - - Dated:- 15-12-1965 - Judge(s) : K. SUBBA RAO., J. C. SHAH., S. M. SIKRI JUDGMENT The judgment of the court was delivered by SHAH J.--- On December 24, 1959, Messrs. Short Brothers (Private) Ltd. sold its coffee estates and other assets, and by resolution dated February 6, 1960, it was resolved that it be voluntarily wound up and liquidators be appointed to administer its affairs. Out of the proceeds realized by sale of its assets, the liquidators of the company distributed on March 30, 1960, Rs. 8,50,000 to the shareholders. By letter dated December 19, 1960, the Income-tax Officer, Salem, informed the liquidators that he proposed to treat that amount distributed as dividends in the hands of the shareholders, and to call upon the liquidators to pay the amount of tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rights conferred by Part III and for any other purpose. It is true that normally the High Court will not entertain a petition in exercise of its jurisdiction under article 226 of the Constitution when the party claiming relief has an alternative remedy which is adequate and efficacious. The question however is one of discretion of the High Court and not of its jurisdiction, and if the High Court in exercise of their discretion thought that the case was one in which their jurisdiction may be permitted to be invoked, this court would normally not interfere with the exercise of that discretion. The High Court was of the view that all profits accumulated in the previous years and the profits till the date on which it was resolved that the company be voluntarily wound up would be included in the expression " accumulated profits " under section 2(6A)(c) of the Indian Income-tax Act read with the Explanation. They held that even capital gains taxable under section 12B except for the period mentioned in the Explanation were, when distributed, " dividend " within the definition, but profits realised by transfer of property used for agricultural purposes and which yielded agricultura ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lude 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. By sub-section (1) of section 12B tax is payable by an assessee under the head " Capital gains " in respect of any profits or gains arising from the sale, exchange, relinquishment or transfer of a capital asset effected after the 31st day of March, 1956, and such profits and gains shall be deemed to be income of the previous year in which the sale, exchange, relinquishment or transfer took place. Under the Indian Income-tax Act, 1922, " Capital gains " arising after March 31, 1946, were made chargeable by the Income-tax and Excess Profits Tax (Amendment) Act, 1947, which inserted section 12B in the Act. The levy was, however, abolished by the Finance Act, 1949, and the operation of section 12B as enacted by the Amendment Act of 1947 was restricted to capital gains arising before April 1, 1948. By the Finance Act 3 of 1956, which introduced a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l be brought to tax wholly if they consist of accumulated profits, or partially to the extent they are attributable to accumulated profits. Amendments which have been made from time to time in the Act clearly disclose the intention of Parliament that it was not intended to allow the profits of the current year distributed by a liquidator of a company to escape liability to tax. In Inland Revenue Commissioners v. George Burrell, it was held that on the undivided profits of past years and of the year in which the winding up of a company occurred which were distributed among the shareholders, super-tax was not payable, because in the winding up they had ceased to be profits and were assets only. It was observed in Burrell's case that the only thing the liquidator of a company in liquidation may do is to turn the assets into money, and divide the money among the shareholders in proportion to their shares. Surplus of trading profit made in a particular year are distributable rateably among all the shareholders as capital, and it is not right to split up the sums received by the shareholders into capital and income, by examining the accounts of the company when it carried on business, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t " current profits ", i.e., profits of a company in liquidation arising after the end of the last previous year and before liquidation commenced, were brought within the net of taxation as dividend. The contention raised by counsel for the company on this part of the case must fail. The question which remains to be considered is whether capital appreciation in respect of the lands from which the income derived is agricultural income and which was not taxable in the hands of the company as capital gains would still on distribution be liable to be taxed as dividend under section 12 of the Income-tax Act. As we have already pointed out, capital gains under section 12B are chargeable in respect of any profits arising from transfer of " capital assets ", and " capital assets " do not include lands from which the income derived is agricultural income. Profits derived by transfer of lands from which the income derived is agricultural income would not, therefore, be chargeable on a combined reading of section 12B with section 2(4A) of the Income-tax Act under the head " Capital gains ". The expression " accumulated profits " does not include capital gains arising within the excepted pe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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