GAUTAM SARABHAI Vs. CIT

JUDGEMENT

(1.) This is a reference under sec. 66(1) of the Indian Income Tax Act 1922 The assessment year with which were concerned is the 1955-56 the accounting year being the calendar year 1954. The assessee were shareholders in a company incorporated in accordance with the law prevailing in East Africa called Kawampe Cotton Co. Ltd. Kampala. Having regard to the provisions contained in the Indian Income Tax Act 1922 this company was regarded as a company for the purpose of the Indian Income Tax Act. This company went into voluntary liquidation on 22nd July 1954. In the month of August 1954 the liquidator of the company made payments to the assessees who were the share-holders in that company. The amounts paid to the assessees were received by the assessees on 27th August 1954. The following tabular statement shows the names of the assessees the number of shares of the company held by them. the amount received by them referable to the share capital the amounts received by them 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: @@@ S. No. Name of the Name of shares share Capital Capital. Profit. Amount of accumulated profits treated as dividend. Total Distribution. Amount of accumulated profits of past six years to be treated as dividend. 1. 2 3 4 5 6 7 8 Rs. Rs. Rs. Rs. Rs. 1. Shri Gautam Sarabhai 138304 74,455 48,391 84,519 2,07,365 6,200 2. Dr. Vikram A. Sarabhai 304 1,64,016 1,06,600 1,86,185 4,56,801 13,653 3. Smt. Bharati Sarabhai 70 37,767 24,546 42,872 1,05,185 3,145 4. Smt. Leena A. Sarabhai 70 37,767 24,546 42,868 1,05,181 3,145 5. Smt. Geeta Mayor 70 37,767 24,546 42,868 1,05,181 3,145 6. Smt. Gira Sarabhai 69 37,227 24,546 42,260 1,03,682 3,100 7. Smt. Manorama Sarabhai 46 24,818 16,130 28,173 69,121 2,067 8. Shri Anand Sarabhai 129 69,599 45,235 * 79,006 1,93,840 5,796 9. Shri Suhrid Sarabhai 129 69,599 45,235 * 79,006 1,93,840 5,796 * Actual amount taxed as dividend is 80,011. * Actual amount taxed as dividend is 80,010.

(2.) The Income Tax Officer held that the amounts distributed as aforesaid referable to the accumulated profits of previous years of the company fall within the category of dividend under sec. 2(6A)(c) of the Indian Income Tax Act 1922 as it stood prior to the amendment made therein by the Finance Act 1955 and were liable to be taxed as dividend. The matter was carried in appeal before the Appellate Assistant Commissioner who upheld the decision of the Income Tax Officer and dismissed the appeal. The matter was carried further before the Income Tax Appellate Tribunal. The Income Tax Appellate Tribunal upheld the decision of the Income Tax Officer and dismissed the appeal The matter has now been referred to us for the determination of the following questions :

(3.) Section 2(6A)(c) as it existed before the amendment made therein by the Finance Act 19555 ran as under :