Law: Income Tax Act, 1922

Section: 2(6-A)(C)

Income-tax-Company-Dividend-Assessee holding all shares in another company -Latter company struck off the register-Asset of latter company sold-Excess over cost of acquisition-- Whether assessable as "dividend"-Indian Income-tax Act, 1922, S. 2(6-A)(C). The assessee-company held all the shares of another company, and the latter company was therefore struck off the register of companies. Thereafter, during the assessment year the assessee sold all the assets of the company which was struck off and realised Rs. 72,778 after payment of all outstandings. The assessee's investment being only Rs. 57,630 the balance of Rs. 15,148 was treated by the Department and the Tribunal as taxable receipt under section 2(6-A)(c) of the Income tax Act, 1922. On a reference to the High Court: Held, as there was no liquidation and even if the striking off of the company is assumed to amount to liquidation, there was no material to show that the company had accumulated profit before it was struck off and further, as there was no distribution, the conditions of section 2(6-A)(c) were not satisfied and the amount in question was not assessable under section 2(6-A)(c). JUDGMENT VEERASWAMI, J.-The assessee held a large number of shares in an incorporated company by name Tinnevelly Farms and Orchards Limited. By about May 1955, the assessee acquired all the remaining shares of that company. The result was that on May 11, 1955, the company was struck off the register of companies. During the assessment year 1957-58, with which this reference is concerned, the assesse sold all the assets of the company and realised Rs. 72,778 after payment of the outstand ings. The assessee's investment on the shares being only Rs. 57,630, the balance was treated as income and charged to tax. The Tribunal treated the difference as a taxable receipt under section 2(6-A)(c) of the Income-tax Act. The reference to us is of the following question :- "Whether, on the facts and in the circumstances of the case, the sum…