Law: Income Tax Act, 1922

Section: 66(1)

Section 2(22), read with section 2(24) of the Income-tax Act, 1961 [Corresponding to section 2(6A), read with section 2(6C) of the Indian Income-tax Act, 1922] - Deemed dividend - Assessment year 1952-53 - Excess of compensation over cost received by certain mills on acquisition by Government of Land and Building owned by it which was initially transferred to capital reserve accounts was distributed to shareholders including assessees - Amount so received on distribution was treated as 'dividend' within meaning of section 2(6A) and brought to tax in assessee's hands - Whether though compulsory acquisition by Government may not constitute sale, it would still be 'transfer' and profit obtained by transferor on such transfer would be capital gains - Held, yes - Whether distribution by mills entailed release of part of its assets and, thus, fell within terms of section 2(6A)(a), and it could not be regarded as 'dividend', as profit which mills made on account of sale of land and building was capital gain arising after 31-3-1948 and, therefore, excluded from expression 'accumulated profits' for purpose of clause (6A) and thus from category of 'dividend', mentioned in sub-clause (a) of said clause (6A) - Held, yes - Whether in view of above, amount received by assessees was not taxable as dividends - Held, yes FACTS The assesses, one a private limited company and other a HUF, both doing business, were shareholders of NB Mills which purchased a textile mill for Rs. 7 lakhs. The machinery, stores and other material of the purchased mill were removed from Kalyan to Indore for the expansion of the NB Mills. The cost of this machinery, material, etc., was determined at Rs. 6,40,000 and debited in the account books of the mills. The balance of Rs. 60,000 was treated as cost of land and building at Kalyan. Subsequently, the Government acquired the land and building at Kalyan from the mills paying Rs. 7, lakhs as compensation. The excess of Rs. 6,40,000 over the valuation of Rs. 60.000 of the land and building was first transferred to the capital reserve account of the mills. Later on the directors of the mills resolved to distribute the amount to the shareholders as…

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