KANHAIYA LAL BHARGAVA Vs. OFFICIAL LIQUIDATOR

JUDGEMENT

(1.) THIS is a petition by two contributories of a company in liquidation. It purports to be under Section 216 of the Indian Companies Act, 1913. It prays that the official liquidator be directed not to deduct any income-tax from the third dividend which he proposes to distribute among the shareholders of the company. It also prays that the liquidator be directed to pay back to the shareholders the deduction of 30 per cent. made out of the second dividend.

(2.) THE petitioners hold ten thousand fully paid up shares of rupees ten each in the Lower Ganges Jamuna Electricity Distributing Co. (hereinafter called the company in liquidation). THE company was compulsorily wound up by an order of this court passed in September, 1934. From the particulars given by the official liquidators it appears that at the commencement of the winding up of this company in September, 1934, the assets amounted to Rs. 11,72,762 10 as. 5 ps., whereas the liabilities were to the tune of Rs. 12,58,686 11 as. 5 ps. THE official liquidator carried on the business of the company and he made up the loss and showed profit. In the balance-sheet ending 30th June, 1961, a profit of Rs. 3,79,316.30 nP. was shown. In or about June, 1961, the entire assets of the company were sold to the U.P. State Electricity Board for a sum of Rs. 13,80,096.00 nP.

(3.) IT is thus apparent that the company had no accumulated profits in September, 1934, when the winding up commenced. The company did make profits during liquidation, the total whereof amounted to Rs. 3,79,316. 30 nP. The question is whether distribution of this profit is dividend so as to attract liability of deduction of tax at source. Chapter 176 of the Income-tax Act, 1961, deals with "deduction at source". Section 194 relates to dividends. This section imposes upon a company a liability to deduct income-tax and super-tax at the current rates from the amount of dividend before paying or distributing it. The dividend to which this liability is attached is dividend within the meaning of Sub-clause (a) or (b) or (c) or (d) or (e) of Clause (22) of Section 2 alone. Before deduction at source can be made the dividend must conform to any one of these sub-clauses.