Law: Income Tax Act, 1922

Section: 2(6A)

Section 2(22) of the Income-tax Act, 1961 [Corresponding to section 2(6A) of the Indian Income-tax Act, 1922] - Deemed dividend - Assessment year 1955-56 - Assessees were shareholders in a company incorporated in a foreign country - Company went into liquidation in 1954 and thereafter, liquidator of company made certain payments to assessees being shareholders of company - ITO held that out of amounts so distributed, amounts referable to accumulated profits of previous years of company fell within category of "dividend" under section 2(6A)(c) of 1922 Act as it stood prior to amendment made by Finance Act 1955 and were liable to be taxed as dividend - Whether portion of amount received by assessees from liquidator of company which was referable to accumulated profits of company was taxable as "dividend" by virtue of section 2(A)(c) of 1922 Act - Held, yes FACTS The assesses were shareholders in a company which went into voluntary liquidation on 22-7-1954. In the month of August 1954, the liquidator of the company made payments to the assessees of the amounts referable to the share capital, the amount referable to capital profit, the amount of accumulated profits treated as dividend, the amount of total distribution and the amounts referable to accumulated profits of six previous years of the company preceding the date of liquidation. The said amounts were received by the assessees on 27-8-1954. The ITO held that the amounts, referable to the accumulated profits of previous years of the company fell within the category of "dividend" under section 2(6A)(c) of 1922 Act, as it stood prior to the amendment made therein by the Finance Act, 1955, and were liable to be taxed as dividend. The AAC as well as the Tribunal upheld the decision of the ITO. On reference : HELD The words used in section 2(6A)(c ) of 1922 Act are that any distribution made to shareholders of a company "out of accumulated profits of the company" on the liquidation of the company are liable to be regarded as dividend. Reading the section as a whole, it is clear that what the legislature intended to hit at was a distribution made to the shareholders of a company which is referable to accumulated…

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