Shah, J. - (1.) The Income-tax Appellate Tribunal submitted the following question under Section 66 (1) of the Income Tax Act, 1922, to the High Court of Madras for opinion:-"Whether on the facts and in the circumstances of the case the Tribunal was right in holding that the sums of Rs. 81,611 and Rs. 1,49,444 were not the part of the accumulated profits of the company as on December 31, 1954 as contemplated under Section 2 (6A) (c) of Income-tax Act of 1922 - The High Court answered the question in the affirmative. The Commissioner of Income-tax asked for and obtained a certificate from the High Court only in respect of the amount of Rs. 81, 611. This appeal is, therefore, restricted to the claim of the Revenue that the amount of Rupees 81,611 was not part of the "accumulated profits of the company as on October 31, 1954 as contemplated by Section 2 (6A) (c) of the Income Tax Act, 1922."
(2.) Ajax Products Ltd. was a public limited company incorporated in 1939. It maintained its accounts according to the calendar year. The respondents to this appeal were shareholder of the company. The company "went into liquidation on October 31, 1954". The liquidators of the company distributed on March 10, 1955 to the shareholders for each share Rs. 100 by allotment of a share in Carborundum Universal Ltd. of the same face value. Between January 1, 1954 and October 31, 1954, the company earned a profit of Rs. 1,79,704. On the profit of Rs. 1,79,704, the company was assessed to pay Rs. 98,093 as tax, leaving a balance of Rs. 81,611 which formed part of the amount distributed. The Income-tax Officer brought the value of the shares received by the shareholders to tax, on the footing that it represented "accumulated profits" In appeal the Appellate Assistant Commissioner held that under the law as it then stood, the amount of Rs. 81,611 was not accumulated profits and when distributed, it was capital in the hands of the shareholders. This order was confirmed by the Tribunal. The High Court agreed with the view of the Tribunal that under the definition of the expression "dividend" in Section 2 (6A) (c) in force in the year of assessment 1955-56, distribution of the current profits in the year in which the company was ordered to be wound up was not dividend and was on that account not liable to be taxed as dividend.
(3.) Under the Indian Companies Act, 1913, no dividend could be paid otherwise than out of profits of the year or undistributed profits of the previous years. A company as a going concern may distribute by way of dividend to the shareholders profits of the year or accumulated profits of the previous years. But a share in the assets of the company distributed in the course of winding up is of the nature of capital and not of dividend, and it cannot be apportioned into capital and accumulated profits.;