Law:

Section:

Section 2(22)(d) of the Income-tax Act, 1961 - Deemed dividend - Assessment year 1963-64 - Whether a dividend would and should come out of accumulated profits - Held, yes - Whether where company made advance to its share holders in previous years, it must be taken as having come out of profits of previous year and when it had not been established that there had been deductions made from accumulated profits in past when dividend was issued or advances made, same had to be deducted from accumulated profits of year in question - Held, yes Section 45, read with section 2(47) of the Income-tax Act, 1961 - Capital Gains - Chargeable as - Assessment years 1963-64 - Whether where company in which assessee was holding certain shares reduced face value of its share, no capital gains was assessable in hands of assessee as there was no extinguishments of any right of assessee and consequently, there was no transfer within meaning of section 2(47) - Held, yes FACTS The assessee was a shareholder in a company. During relevant accounting period the company resolved to reduce its capital. The necessary procedure was gone through, the court order was obtained and the reduction was given effect to on 25-5-1962. The result of the reduction was to reduce the value of the share. Consequent on this reduction, there was distribution of assets and money to the shareholders. The company also advanced certain amount to four shareholders in the previous years. The Tribunal held that the deemed dividends viz., the advances made to the shareholders, assessed in the hands of the various shareholders in the past assessment years, should be deducted from the surplus while determining the 'accumulated profits' in the hands of the company. The Tribunal further held that no capital gain was assessable in the hands of the assessee as there was no extinguishment of any right of the assessee and consequently there was no transfer within the meaning of section 2(47), by the assessee of any capital assets for the relevant assessment year. On reference: HELD It is clear on a reading of section 2(22)(d ) that, on distribution, there will be an issue of dividend only to the extent to which the company…

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