Judgment

HEGDE, J. :- The principal question of law arising in these appeals by certificate is whether on the facts and in the circumstances of each of these cases the Department was right in applying Section 44-F read with Section 2 (6-A) (c) of the Indian Income-tax Act, 1922 (to be hereinafter referred to as the Act). The Income-tax Officer, the Appellate Assistant Commissioner and the Income-tax Appellate Tribunal answered that question in favour of the Department but the High Court answered the same in favour of the assessee. As we are in agreement with the conclusion reached by the High Court, we do not think it necessary to examine the other questions arising in these appeals.

2. For deciding the said question of law, it is sufficient if we take up the facts of any one of these cases. For the sake of convenience, we shall set out the facts in Civil Appeal No. 2348 of 1968. The assessee in that case is Vadilal Lallubhai. He is assessed as an individual. The relevant assessment year is 1958-59, the accounting year being the year ending on March 31, 1958.

3. The assessee belongs to the well-known family of Vadilal Lallubhai Mehta of Ahmedabad. The members of this family (who for the sake of convenience will hereinafter be referred to as the "Mehta Group") owned shares in and controlled several companies including certain managing agency companies. Those managing agency companies were Private Ltd. companies. The managed companies were also companies in which the members of the "Mehta Group" had controlling interest. This Group had also selling agency rights in the companies which they were managing. On the coming into force of the Companies Act, 1956, the managing agency companies gave up their managing agency rights in order to safeguard their selling agency rights. Thereafter the assessee sold his share holdings to the employees of some "Mehta Group" companies or the relations of such employees. In addition he sold some shares to one of the family trusts. A few days after the sales in question, those manging agency companies went into voluntary liquidation. Consequently the assets of those companies were distributed among the shareholders who were borne on the registers of the companies as on the dates of liquidation. These shareholders included those persons who had newly purchased the shares. One of the new shareholders as mentioned earlier was a charitable trust which was not liable to pay any tax. The remaining sharesholders were either not liable to pay any tax or were liable to pay tax at a lower rate than the assessee would have had to pay had he received the amount distrubed by the liquidators.

4. The Income-tax Officer brought to tax a portion of the assets distributed on liquidation by applying Section 44-F read with Section 2 (6-A) (c) of the Act. The Appellate Assistant Commissioner agreed with this view. The assessee s appeal to the Income-tax Appellate Tribunal was unsuccessful. Thereafter at the instance of the assessee, certain questions were referred to the High Court for its opinion. Various contentions were advanced before the High Court on behalf of the assessee. We do not think it necessary to refer to those contentions as in our view the High Court was right in taking the view that to the facts and circumstances of the case, Sec. 44-F read with Section 2 (6-A) (c) was inapplicable.

5. It was contended on behalf of the Revenue that the distribution of the assets of the various managing agency companies on liquidation is "dividend" within the meaning of S. 2 (6-A) (c) and consequently as "income" as defined in Section 2 (6-C). Further the assessee sold his shares with a view to avoid income-tax and super-tax and consequently the assets distributed which would have fallen to his share had he not sold his share are liable to be brought to tax under the provisions of Section 44-F of the Act. On the other hand, it was contended on behalf of the assessee that the definitions contained in Section 2 are only to be