COMMISSIONER OF INCOME TAX Vs. MARTIN BURN LTD

JUDGEMENT

(1.) This reference arises out of the assessment years 1962-63 and 1964-65. The following question has been referred to us under Section 256(1) of the I.T. Act, 1961 :

(2.) The assessee-company held shares in M/s. Upper Ganges Valley Electricity Co. Ltd. whose electricity supply undertaking was handed over to the U.P. State Electricity Board on 5th May, 1959, and which subsequently went into liquidation on 1st March, 1960. During the previous years relevant to each of the two assessment years 1963-64 and 1964-65, the official liquidator paid to the assessee-company a total sum of Rs. 1,00,750 and the point arose as to whether this amount in each of these two years could be treated as "deemed dividend" income under Section 2(22)(c) of the I.T. Act, 1961. The ITO did not accept the assessee's contention that in working out the accumulated profits of M/s. Upper Ganges Valley Electricity Co. Ltd. immediately before its liquidation on 1st March, 1960, to which the distribution by the official liquidator could be attributed as "deemed dividend" (i) the tariffs and dividends control reserve, (ii) contingencies reserve, and (iii) development reserve, should be excluded.

(3.) Aggrieved by the said order of the ITO, the assessee-company went up in appeal before the AAC. The AAC while giving relief on some other point upheld the action of the ITO on this point. There was a further appeal to the Appellate Tribunal. The Tribunal noted the basic facts, as we have mentioned before and observed that these three reserves had been handed over to the U.P. State Electricity Board under the relevant provisions of the Electricity Act, to which we shall presently refer and compensation money was paid to the assessee. The total amount of compensation assessable to tax, according to the Sixth Schedule of the Indian Electricity Act, 1948, was Rs. 25,38,407 for all the assets of the undertaking and deduction was made of the amounts which had been transferred to the U.P. State Electricity Board on account of, (i) tariffs and dividends control reserve, (ii) contingencies reserve, and (iii) development reserves, and deducting this amount the balance compensation was paid and out of this the distribution was made. Therefore, it was contended that no part of the amount distributed could be attributable to the accumulated profits. Before we consider this aspect further, it is relevant to refer to Section 2(22) which deals with dividends and states that what is included in dividend and we are concerned with Sub-clause (c) of Section 2(22) of I.T. Act, 1961, which reads as follows: