T APPAVU CHETTIAR Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE question referred to this Court under section 66(1) of the Income-tax Act was: "Whether the sum of Rs. 31, 250 was rightly taxed." THE assessee held ten shares of the face value of Rs. 8, 750 in Sri Kannan Rice Mills Ltd., hereinafter referred to as the company. THE subscribed capital of the company was Rs. 43, 750 most of which was apparently spent on the acquisition of a rice mill. THE company went into liquidation on 31st March, 1947 the liquidator sold the assets of the company the same day and realised Rs. 2, 10, 000.

(2.) THE realisations were distributed between the shareholders on 1st April, 1947. THE assessee received for his share Rs. 40, 000. Rupees 31, 250 the difference between the capital he had subscribed and the share of the assets he received on liquidation was assessed to income-tax in the assessment year 1947-48. THE accounting year of the assessee ended on 12th April, 1947. THE accounting year of the company was 1st April, 1946, to 31st March, 1947 THE Tribunal held that the amount in question, Rs. 31, 250, was "dividend", which came within the scope of section 2(6A)(c) of the Income-tax Act. THE alternative basis for sustaining the assessment was that it amounted to capital gains, taxable under section 12B of the Income-tax Act, which in the opinion of the Tribunal was more favourable to the assessee It should be noted that the company itself was assessed to capital gains under section 12B, and that was sustained by this Court in R.C. No. 8 of 1951. Obviously section 12B will not apply to the amount received by the assessee. It was not profits or gains arising from the sale of any capital asset of his. It was the sale of the capital assets of the company, in which he was no doubt a shareholder, that resulted in profits Section 2(6A)(c) runs:

(3.) THE realisation of the company was only on 31st March, 1947. It is only any distribution out of the accumulated profits of the company in any of the six previous years, the six accounting years of the company previous to the year ending 31st March, 1947, that would fall within the scope of sub-clause (c). That the dividend accrued to the assessee in his previous year, the accounting year ending with 12th April, 1947, is irrelevant THE view we have taken of the scope of the proviso to sub-clause (c) of section 2(6A) is in accord with the principle laid down by Chagla, C.J., and Tendolkar, J., in Sheth Haridas Achratlal v. Commissioner of Income-tax. See the observations at pages 688 and 689. We respectfully agree with the view taken by the learned Judges of the Bombay High Court : if we may say so with respect, the significance of the expression 'six previous years of the company preceding the date of liquidation" in the proviso to sub-clause (c) of section 2(6A) has been correctly defined.