Law:

Section:

Section 2(22) , read with section 94 of the Income-tax Act, 1961 (Corresponding to section 2(6A)(c), read with section 44F of the Indian Income-tax Act, 1922) - Deemed dividend - Assessment year 1958-59 - Whether deemed dividend contemplated by section 2(6A)(c) of 1922 Act could not be considered as "income" under section 44F of 1922 Act - Held, yes Interpretation of statutes : Legal fictions are only for a definite purpose and they are limited to the purpose for which they are created and should not be extended beyond their legitimate field FACTS The assessee owned shares in and controlled several companies including certain managing agency companies which were private limited companies. On coming into force of the Companies Act, 1956, the managing agency companies gave up their managing agency rights in order to safeguard their selling agency rights. Thereafter the assessee sold his shareholdings. A few days after this sale those managing agency companies went into voluntary liquidation. The assets of those companies were distributed among the shareholders, including the assessee. The Income-tax Officer brought to tax in the hands of the assessee portion of the assets distributed in liquidation by applying section 44F read with section 2(6A)(c) of 1922 Act. The AAC and the Tribunal agreed with this view. On reference the High Court took the view that section 44F read with section 2(6A)(c) of 1922 Act was inapplicable. On appeal to the Supreme Court: HELD Section 44F of 1922 Act concerns itself with income arising from securities or shares, during a period of time. When a company goes into liquidation, the share-scrips are no more income yielding assets. They are mere pieces of paper. No income arises from those shares thereafter. What the shareholder gets on liquidation is not any income from shares but a share of the assets of the quondam company. Such a receipt is incapable of being deemed to accrue from day to day. In the case of interest on securities or dividends on shares, they are paid at certain intervals. Hence, it is possible to deem them as having accrued from day to day but in the case of distribution of assets of a company in liquidation, it is…

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