Civil Appeal No 871 of 1964
Appeal from the judgment and order dated January 16 17 1961 of the Gujarat High Court in Special Civil Application No 233 of 1960
N D Karkhanis T A Ramachandran 0
C Mathur Ravinder Narain and J B Dadachanii for the appellant
A V Viswanatha Sastri R Ganapathy Iyer B R G K A char and R N Sachthey for the respondents
The Judgment of the Court was delivered by Shah J
The appellants Company registered under the Indian Companies Act 1913 was assessed in the assessment years 1948 49 to 1953 54 in respect of the profits earned in its business and was allowed rebate under the appropriate provisions contained in the Schedules to the relevant Finance Acts on the undistributed profits of the previous years
On December 31 1956 at an annual general meeting of the shareholders the Company declared an aggregate sum of Rs 215232 as dividend for the year ending December 31 1956
Thereafter a special resolution was passed for voluntary winding up of the Company with effect from October 1 1957 and for appointing a liquidator to wind up the affairs of the Company
On October 20  21 1957 the liquidator distributed to the shareholders thereafter on February 21  22 1958 July 27 1959 the liquidator distributed to the shareholders
In respect of each liquidator issued an income tax refund that the amount was distributed out of accumulated profits of earlier years
The Income tax Officer Special Investigation Circle B Ahmedabad in exercise of the power under section 3510 of the Indian Income tax Act 1922 passed an order withdrawing the rebate 734 granted in respect of each of the six assessment years 1948 49 to 1953 54 and demanded payment of tax on the amount of the rebate
The appellant then applied to the High Court of Bombay for writs quashing the orders of the Income tax Officer and the notice of demand and directing the Income tax Officer to withdraw and cancel the order and notice of demand
The petition was dismissed by the High Court
With certificate granted by the High Court this appeal has been preferred
Two questions are raised for determination in this appeal 1 Whether section 3510 authorises the Income tax Officer to bring to tax rebate granted in assessment years commencing prior to April 1 1956 and 2 whether distribution by the liquidator of accumulated profits in the previous years could be regarded as declaration of dividend within the meaning of section 3510 so as to attract the applicability of the provisions enabling withdrawal of rebate and demand for tax
The first question is concluded by a recent judgment of this Court in Ahmedabad Manufacturing and Calico Printing Co Ltd vs section G Mehta Income tax Officer and Another1
In that case this Court held that section 3510 applied even though dividend was declared before April 1 1956
Counsel for the Company urged that in the Ahmedabad Manufacturing and Calico Printing Co s case it was held that power to withdraw rebate granted in the year before April 1 1952 was not exercisable by the Incometax Officer under section 3510 and consistently with that view withdrawal of rebate granted in the years ending on and before March 31 1952 was unauthorised
In Ahmedabad Manufacturing and Calico Printing Co s case1 declaration of dividend by the Com pany was made on April 20 1953
The financial year in which the amount on which rebate of income tax was allowed was availed of by the Company for declaring dividends was 1953 54 and within four years from the end of that year an order calling upon the Company to show cause why action should not be taken under section 3510 to recall the proportionate part of the rebate was issued
It was said by Hidayatullah J  Since the power commenced on April 1 1956 the utmost reach of the Income tax Officer would be the end of the assessment year 1952
Any declaration of 1 1963 Supp 2 SCR 92
735 dividend after 1st day of April 1952 out of accumulated profits of any of the years in which rebate was earned would be within the time for the recall of any rebate
But a declaration prior to April 1 1952 would be beyond the power of the Income tax Officer to recall Power to withdraw rebate was in that case held exercisable within four years from the end of the financial year in which the amount of rebate was availed of  it was not held that the power was exercisable in respect of rebate granted only in respect of four years before April 1956
The argument raised by counsel importing a limitation contrary to the plain words of the statute must therefore be rejected
Sub section 10 of section 35 was inserted in the Income tax Act by section 19 of the Finance Act 196 with effect from April 1 1956
It provides Where in any of the assessments for the years beginning on the 1st day of April of the years 1948 to 1955 inclusive a rebate of income tax was allowed to a company on a part of its total income under clause i of the proviso to Paragraph B of Part I of the relevant Schedules to the Finance Acts specifying the rates of tax for the relevant year and subsequently the amount on which the rebate of income tax was allowed as aforesaid is availed of by the company wholly or partly for declaring dividends in any year the amount or that part of the amount availed of as aforesaid as the case may be shall by reason of the rebate of incometax allowed to the company and to the extent to which it has not actually been subjected to an additional income tax in accordance with the provisions of clause ii of the proviso to Paragraph B of Part I of the Schedules to the Finance Acts above referred to
be deemed to have been made the subject of incorrect relief under this Act and the Income tax Officer shall recompute the tax payable by the company by reducing the rebate originally allowed as if the recomputation is a rectification of a mistake apparent from the record within the meaning of this section and the provisions of sub section 1 shall apply accordingly the period of four years specified therein being reckoned from the end of the financial year in which the amount on which rebate of 736 income tax was allowed as aforesaid was availed of by the company wholly or partly for declaring dividends
 It is urged by counsel for the Company that power under sub section 10 of section 35 cannot be exercised because distribution of accumulated profits by the liquidator is not distribution by the Company
The argument is wholly without substance
On the passing of a special resolution by the Company that it be wound up voluntarily under the Companies Act 1 of 1956 the Company does not stand dissolved
That is so expressly provided by section 487 of the Companies Act
A Company which has resolved to be voluntarily wound up may be dissolved in the manner provided by section 4975  till then the Company has corporate existence and corporate powers
The property of the Company does not vest in the liquidator  it continues to remain vested in the Company
On the appointment of a liquidator all the powers of the Board of directors and of the managing or whole time directors managing agents secretaries and treasurers cease section 491 and the liquidator may exercise the powers mentioned in section 512 including the power to do such things as may be necessary for winding up the affairs of the Company and distributing its assets
The liquidator appointed in a members  winding up is merely an agent of the Company to administer the property of the Company for purposes prescribed by the statute
In distributing the assets including accumulated profits the liquidator acts merely as an agent or administrator for and on behalf of the Company
It is then urged that on the commencement of winding up distinction between the capital and accumulated profits of the Company disappears and what remains in the hands of the liquidator are the assets of the Company and distributions made by the liquidator are distributions of capital regardless of the source from which the funds are distributed is capital or accumulated profits
In distributing the surplus assets in his hands the liquidator is therefore not declaring dividends within the meaning of section 3510
In support of this contention reliance was placed upon Inland Revenue Commissioners vs George Burrell1
The Court in that case held that on the winding up of a limited company the undivided profits of the past year and the year in which winding up occurred were only assets of the company and on distribution amongst the shareholders supertax was not payable on the undivided profits as income
1 737 Under the  accumulated profits of the Company at the commencement of the winding up of the Company undoubtedly come into the hands of the liquidator as assets for the purpose of satisfying liability of the Company and for distribution among the shareholders
But the rule in Burrell s cave1 since the amendment of the definition of dividend in section 26A by the Finance Act 1956 no longer applies when the liability to assessment of income tax in respect of amounts distributed out of accumulated profits by a liquidator in a winding up falls to be determined
The Parliament had devised by the Indian Income tax Amendment Act 7 of 1939 a special inclusive definition for the Income tax Act 1922 of dividend in section 26A
Being an inclusive definition the expression dividend means dividend as ordinarily understood under the and also the heads of payment or distribution specified therein
Clause c as originally enacted included distributions made to the shareholders of a Company out of accumulated profits on the liquidation of the Company
This was clearly an attempt to supersede the rule in Burrell s case1
It was pointed out by this Court in Dhandhania Kedia  Co vs Commissioner of Income tax2 that section 2 6A c was enacted to remove the anomaly which was created by the judgment in Burrell s case1 and to assimilate the distribution of accumulated profits by a liquidator to a similar distribution by a Company which is working
But the language of the clause and the proviso thereto included only those accumulated profits which had not been capitalized and which arose during the six previous years preceding the date of commencement of the year of account in which the liquidation commenced
By the Finance Act 1955 the proviso to cl
c was omitted  thereby accumulated profits whether capitalized or not and without any restriction as to time were brought within the definition
By the Finance Act 1956 cl
c was recast as follows   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 capitalized or not
 Amendment to cl
c in section 26A was made and section 3510 was inserted in the Income tax Act simultaneously by the Finance Act 1956
It would be reasonable to regard the provisions of section 3510 and amended cl
c of sub section
6A of section 2 as part of a 1 L3Sup
CI66 18 2 738 single scheme to declare distribution of accumulated profits capitalized or not as dividends and to bring the rebate granted on undistributed profits to tax if availed of by the company or by the liquidator of a company for distributing dividends
Counsel for the Company contended that the amount distributed out of accumulated profits by the liquidator is not dividend in the hands of the Company
For this distinction again there is no warrant
Distribution of accumulated profits by a Company not subject to winding up is distribution of dividend by virtue of section 26A a and distribution of accumulated profits in the course of liquidation is dividend by virtue of section 26Ac
It is true that the definition of dividend in section 26Ac win apply only if there is nothing repugnant in the subject or context in which the expression dividend occurs in section 3510 but there is nothing in section 3510 which suggests that the expression dividend was to have a meaning different from the meaning assigned to it by the interpretation clause
It was urged that assuming that accumulated profits of a Company distributed by the liquidator may be regarded as dividends power under section 3510 cannot be exercised in respect of those profits because the liquidator is not in distributing the profits declaring dividends
But the assumption underlying the argument that the provides that dividends may be deemed to be declared only if certain mandatory provisions are complied with is without substance
By section 205 of the Indian before it was amended in 1960 it was provided that no dividend shall be declared or paid except out of the profits of the company or out of moneys provided by the Central or a State Government for the payment of the dividend in pursuance of a guarantee given by such Government
The Company in the present case was registered under the Indian Companies Act 1913
The Articles of Association of the Company are not before us but the Articles relating to distribution of dividend being under section 172 of the Companies Act 1913 obligatory articles 95 96 and 97 in Table A of Act 7 of 1913 applied
By article 95 it was provided that a company in general meeting may declare divi dends but no dividends shall exceed the amount recommended
But to the distribution of interim dividends the condition that it must be declared in general meeting of the Company did not apply and such interim dividends as appeared to the directors to be justified by the profits of the company could be distributed article 96
The only other relevant condition was in article 97 that no dividend shall be paid otherwise than out of profits of the year or any other undistributed profits
739 The liquidator of the appellant company did from time to time distribute accumulated profits and within the meaning of section 26Ac read with the provisions of the Companies Act they were distribution of interim dividends
It is true that power under section 3510 may be exercised if accumulated profits are availed of by the Company for declaring dividends in any year but since the Companies Act does not in the matter of distribution of interim dividends set up any special machinery nor impose any special condition before power in that behalf may be exercised no artificial meaning can be attached to the word declaring dividends
Distribution of accumulated profits by the liquidator together with the income tax refund certificate in the course of voluntary winding up may therefore for the purpose of section 26Ac be regarded as declaration of dividend
The appeal therefore fails and is dismissed with costs
Appeal dismissed


Summary:
The appellant company was assessed to tax in the assessment years 1948 49 to 1953 54 in respect of its profits and was allowed rebate on the undistributed profits
It was resolved to voluntarily wind up the company with effect from October 1 1957
The liquidator during the years 1957 to 1959 distributed from time to time the accumulated profits to the shareholders and also issued income tax refund certificates
The Income tax Officer under section 3510 of the Income Tax Act 1922 withdrew the rebate granted in respect of each of the assessment years 1948 49 to 1953 54 and demanded payment of tax
The company applied for a writ quashing the order but the High Court dismissed the petition
In appeal to this Court the company contended that  i Section 3510 did not authorise the Income tax Officer to bring to tax the amount on which rebate tax was granted in assessment years commencing prior to 1st April 1956 and ii the distribution by the liquidator of accumulated profits could not be regarded as declaration of dividend by the company within the meaning of section 3510
HELD  i The power to withdraw rebate was exercisable within 4 years from the end of the financial year in which the amount on which rebate was allowed was availed of by the company for declaring dividends
1735 B C Ahmedabad Manufacturing and Calico Printing Co Ltd vs SG Mehta 1963 Supp 2 SCR 92 followed ii Distribution of accumulated profits by the liquidator together with the income tax refund certificates in the course of voluntary winding up can be regarded as declaration of dividend so as to attract the applicability of provisions enabling the withdrawal of rebate and demand for tax
739 C On the passing of a resolution for voluntary winding up the company does not stand dissolved and its property does not vest in the liquidator
lit distributing the assets including accumulated profits the liquidator acts merely as an agent or administrator for and on behalf of the company
Therefore distribution by the liquidator is distribution by the company
736 B C E There is nothing in section 3510 which suggests that the expression dividend was to have a meaning different from the meaning assigned to it by section 26A in the interpretation clause
By the omission of the proviso to section 26Ac by the Finance Act 1955 distribution of accumulated profits whether capitalised or not and without any restriction as to time was brought within the definition of dividend
The provisions of sections 3510 and 26Ac are part of a single scheme to declare distribution of accumulated profits capitalized or not as dividends and 733 to bring the undistributed profits on which rebate was granted to tax if availed of by the liquidator of the company for distributing dividends
737 F H 738C D Power under section 3510 may be exercised if accumulated profits are availed of by the company for declaring dividends in any year that is after following the procedure in article 95 of Table A of the Companies Act 1913 under which the assessee was registered
But the distribution made by the liquidator was a distribution of interim dividend and in the matter of distribution of interim dividend the Companies Act does not set up any special machinery nor does it impose any special condition before power in that behalf may be exercised
739 A C