Find a Lawyer

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).

T. V. Balakrishnan for C. V. Mahalingam and S. Mathru butheswaran for the Assessee.

V. Balasubrahmanyan and J. Jayaraman for the Commis sioner.

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 of Rs. 15,148, the excess amount realised on the sale of the assets of Tinnevelly Farms and Orchards Limited, is assessable "

Though the question is so framed, it is obvious that it is related to the finding of the Tribunal that it is taxable under section 2(6‑A)(c). The point, therefore, is whether that view is correct.

Section 2(6‑A)(c) is :‑‑

"(6‑A) dividend' includes‑ . . . . .

(c) any distribution made to the shareholders of a company on its liquidation, to the extent to which the distribution is attributable to the accumulated profits of the company immediately before its liquidation, whether capitalised or not."

In order that this provision should apply, it is sine qua non that there must be a liquidation and in such liquidation there is distribution and that distribution is attributable to the accumulated profits of the company immediately before its liquidation. It is rather surprising how the Tribunal has viewed that the receipt is a taxable receipt under section 2(6‑A)(c). There was here no liquidation. Even assuming that the striking off the company from the register amounted to liquidation‑and this point we do not decide at the moment‑there certainly was no distribution, and there is no material whatever to show that the company before it was struck off the register had accumulated profits. Actually the Tribunal had not adverted to the requisite of the statutory provision and found the necessary facts for applying it.

We have, therefore, no hesitation in answering the question referred to us in favour of the assessee. In the particular circum stances of this case, we make no order as to costs.

Find a Lawyer Near You

Dealing with a matter like this? Connect with a verified advocate in your city — free on SJP Lawyers Directory.