Law:

Section:

Section 2(22) of the Income-tax Act, 1961 [Corresponding to section 2(6A) of the Indian Income-tax Act, 1922] read with schedule I, para D, of the Finance (No. 2) Act, 1957 - Deemed dividend - Assessment year 1957-58 - On orders of High Court share capital of company was reduced, and company distributed amounts to shareholders in consequence of such reduction - ITO held that company had accumulated profits and to that extent distribution by company on reduction of share capital would be regarded as dividend - Tribunal held that rebate of super-tax was allowable to assessee under clause (iii) of first proviso to para D of Part II of First Schedule to Finance (No. 2) Act, 1957 - However, there was no evidence to hold that reduction of share capital in particular case meant any return of "accumulated profits" and there was no question in instant case of any dividend from any subsidiary Indian company within meaning of Paragraph D of the Finance (No. 2) Act, 1957, and its provisos - Whether reduction of share capital did not produce any income on which super tax could be levied nor it was dividend within meaning of Act or Paragraph D of Finance (No. 2) Act, 1957 - Held, yes - Whether, therefore, Tribunal was not right in holding that any rebate of super-tax was allowable in sense that no super-tax itself was leviable on reduction of share capital which occurred in facts and circumstances of case - Held, yes FACTS On the orders of the High Court as a consequence of the take-over by the State of the assessee's business of generation and supply of electricity, the share capital of the assessee-company was substantially reduced, and the company distributed the amounts in cash to its shareholders in consequence of such reduction. The ITO having found accumulated profits, regarded the distribution as dividend to the extent of the accumulated profits. He, concluded that since no part of these profits were allowed to have arisen before 1-4-1933, the company would be deemed to have declared dividend in the assessment year 1957-58 under section 2(6A)(d). Tax was calculated accordingly. On appeal, the two contentions namely, (a) that the definition in clause (d) of section…

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