1971 PTD 80

SOUTHERN AGENCIES (PRIVATE) LTD. Versus COMMISSIONER OF INCOME-TAX, MADRAS

Citation1971 PTD 80

CourtMadras High Court

Judge(s)Veeraswami and Ramaprasada Rao

1. 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 :-

2. "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?"

3. 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.

4. Section 2(6‑A)(c) is :‑‑

5. "(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."

6. 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.

7. 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.