Law:

Section:

Section 2(22) of the Income-tax Act, 1961 [Corresponding to section 2(6A)(c), of the Indian Income-tax Act, 1922] - Deemed dividend - Assessment year 1957-58 - Assessee was a shareholder in a company which went into liquidation - During relevant assessment year, assessee received certain amount from liquidator - Whether amount so received by assessee was not includible in his assessable income as dividend under section 2(6A)(c) of 1922 Act - Held, yes FACTS The company in which the assessee was a shareholder, went into liquidation on 28-2-1953. For the assessment year 1953-54, which covered the last year when the company was in business, the ITO assessed the company's income at Rs. 2,67,357 after taking into account the profit of Rs. 2,61,256 under section 10(2)(vii) of 1922 Act on the sale price of the undertaking, and the net income was computed at Rs. 1,78,183 after allowing a brought-forward loss. The sale price was paid by the Government in instalments and the assessee-shareholder received three payments from the liquidator, one of Rs. 39,500 on the 4-4-1953, the second of Rs. 59,250 on 11-1-1957, and the third of Rs. 35,500 on 19-6-1958. The second of these payments was relevant which was made in the assessment was 1957-58. The ITO treated the whole sum of Rs. 59,250 as dividend under section 2(6A)(c) of 1922 Act, overruling the assessee's claim that this was a capital payment and not taxable income. The Tribunal held that the payment was not on account of accumulated profits mentioned in section 2(6A)(c) of 1922 Act and that it was merely a case of notional profits under section 10(2)(vii) of 1922 Act ascertained in the year of account. The amount was accordingly held not to be taxable. On reference : HELD In the decision of Gujarat High Court in CIT v. Bai Vina [1965] 58 ITR 100, it was held that the receipt of excess over written down value on sale of capital asset could not be held to be profit independently and apart from the legal fiction enacted in the second proviso to section 10(2)(vii ) of 1922 Act and could not be regarded as "dividend" within the meaning of section 2(6A)(c) of 1922 Act and that legal fictions are created only for a definite…

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