COMMISSIONER OF INCOME TAX MADRAS Vs. URMILA RAMESH

JUDGEMENT

(1.) In this batch of cases, the following two questions of law arise for consideration :

(2.) The Revenue has preferred the appeals from the common judgment rendered by the High Court of Madras dated 9-3-1979, reported as Commissioner of Income-tax, Tamil Nadu-I v. T. S. Rajam, 1980) 125 ITR 207.

(3.) We heard counsel at some length. The main facts are not in dispute. The respondents are assessees under the Income-tax Act. They were shareholders of a company known as "Tinnevelly Motor Service Company Private Ltd." The company carried on transport business. Government took overall the vehicles owned by the company. The company went into liquidation. The liquidator distributed the dividends from time to time. Assessments were made for the years 1970-71, 1971-72 and 1972-73. The Income-tax Officer assessed a sum of Rs. 7,28,760/- as representing profits on sale of company's capital assets, which had been subjected to depreciation and not trading or business profits, and the company had shown it as a capital reserve. The plea of the Revenue was that though the amount was shown as capital reserve, it was purely the accumulation of profits, either assessed or equal to the amounts assessed under Section 41(2) of the Act from 1962-63 to 1969-70. On this basis, it was concluded that the said amount represented the income of the shareholders under S.2(24) read with Section 2(22)(c) of the Income-tax Act. The plea of the assessees was that the amounts assessed under Section 41(2) of die Act cannot be treated as 'commercial profits' at all in the real sense and so, it cannot come within the mischief of Section 2 (22) (c) of the Act.