Judgment

SHAH, J. : By a resolution dated August 23, 1952 it was resolved to wind up the respondent company and to appoint a liquidator for that purpose. The paid-up capital of the assessee was Rs. 25 lakhs, and on the date of commencement of winding up it had an accumulated profit of Rs. .5,34,041. From time to time the liquidator distributed the assets in his hands among the shareholders. The following table sets out the distributions made by the liquidator:

Assesment Year Distribution per share Date of distribution Amount distributed

1953-54 Rs. 600 9-9-1952 15,00,000

" Rs. 90 25-9-1952 2,25,000

1954-55 Rs. 60 10-11-1952 1,50,000

" Rs. 30 6-5-1953 75,000

" Rs. 30 23-2-1953 75,000

1955-56 Rs. 80 10-11-1953 2,00,000

Out of the distribution made on September 9, 1952, the Income-tax Officer brought, in the assessment year 1953-54, to tax Rupees 52,400 as "dividend" within the meaning of S. 2 (6A) (c) of the Income-tax Act, 1922, as it then stood. On July 24, 1957, the liquidator distributed Rs. 30 per share among the shareholders. The income-tax Officer in the course of assessment for the year 1958-59 sought to bring the entire amount of Rs. 75,000 distributed to tax as dividend" within the meaning of S. 2 (6A) (c) of the Income-tax Act as amended by the Finance Act, 1956. The objections raised by the liquidator were rejected and the amount was brought to tax. The Appellate Assistant Commissioner confirmed the order of the Income-tax Officer. In appeal to the Tribunal on behalf of the assessee, it was urged that the entire accumulated profit was exhausted when Rs. 17,25 000 were distributed in the year 1952 and thereafter there were no accumulated profits in the hands of the liquidator which could be distributed, and that in any event whenever distribution is made of the assets in the hands of the liquidator, accumulated profits and the capital must be deemed to be distributed in the same proportion in which the accumulated profit and the capital stood at the date of liquidation. The Tribunal rejected the first contention and did not consider the second.

(2) The Tribunal referred the following question to the High Court of Judicature at Bombay under S. (1) of the Income-tax Act, 1922:

"Whether on the facts and in the circumstances of the case the sum of Rupee 75,000 or any part thereof could be treated as dividend under S. 2(6A)(c) of the Indian Income-tax Act, 1922?"

The reference was transferred after reorganisation of the State under the Bombay State Reorganisation Act, 1960, to the High Court of Gujarat for hearing and disposal. The reference was heard before a Bench consisting of Shelat, C. J. and Bhagwati J, The two learned Judges differed, and the case was referred to Bakshi J. Bakshi, J., agreed with Bhagwati, J., and answered the question referred to in the negative.

3. To appreciate the arguments advanced at the Bar, it is necessary to notice the changes which were made from time to time in S. 2(6A)(c) of the Indian Income-tax Act, 1922, and the reasons for enacting and amending that clause. Clause (6A) which defines dividend was inserted in the Indian Income-tax Act by Act 7 of 19 39. As originally enacted, it provided, insofar as it is material for the purpose of this appeal:

" dividend includes

(a) * * *

(b) * * *

"(c) any distribution made to the shareholders of a company on its accumulated profits of the company on the liquidation of the company:

"Provided that only the accumulated profits so distributed which arose during the six previous years of the company preceding the date of liquidation shall be so included; By, S. 3 of the Finance Act, 1955, the proviso to cl. (c) was deleted and by S. 3 of the Finance Act, 1956, with effect from April 1, 1956, the following clause (c) was substituted:

"(c) any distribution made to the shareholders of a company on its liquidation, to the extent to which the distribution is attributable to the accumulated profits of the company immediately before its liquidation. whether capita