Judgment Case ID: 647

Judgment:
Appeal No. 433 of 1957. Appeal from the judgment and order dated August 24	 1956	 of the Rajasthan High Court at Jodhpur in Civil Misc. Case No. 17 of 1955. B. D. Sharma	 for the appellant. A. N. Kripal	 R. H. Dhebar and D. Gupta	 for the respondent 1958. October 17. The Judgment of the Court was delivered by VENKATARAMA AIYAR J. This is an appeal against the judgment of the High Court of Rajasthan in a reference under section 66(1) of the Indian Income tax Act	 1922	 hereinafter referred to as the Act. The facts	 so far as they are material	 are these The appellant is a resident of what was once the independent State of Udaipur. There was in that State a Company called the Mewar Industries	 Ltd.	 registered under the provisions of the law in force in that State	 and the appellant held 266 shares in that Company. On January 18	 1950	 the Company went into liquidation	 and on April 22	 1950	 the liquidator distributed a portion of the assets among the shareholders	 and the appellant was paid a sum of Rs. 26	000 under this distribution. It is common ground that this sum represents the undistributed profits of the Company which had accrued during the six accounting years preceding the liquidation. It should be mentioned that there was in the State of Udaipur no law imposing tax on income	 and that it was only under the Indian Finance Act	 1950 that the residents of the State of Rajasthan	 in which the State of Udaipur had merged	 became liable for the first time to pay tax on their income. That Act came into force on April 1	 1950. We are concerned in these proceedings with the assessment of tax for the year 1951 52	 and that	 under section 3 of the Act	 has to be on the income of the previous year	 i.e.	 1950 51. Now	 the dispute in the present case relates to the sum of Rs. 26	000 paid by the liquidator to the appellant on April 22	 1950. By his order dated July 3	 1952	 the Income tax Officer held 206 that this was dividend as defined in section 2(6A)(c) of the Act and included it in the taxable income of the appellant in the year of account. The appellant took this order in appeal to the Appellate Assistant Commissioner who by his order dated January 12	 1953	 confirmed the assessment. There was a further appeal by the appellant to the Appellate Tribunal	 who also dismissed it on November 10	 1953. On the application of the appellant	 the Appellate Tribunal referred the following question for the decision of the High Court: " Whether on the facts and in the circumstances of this case	 the aforesaid sum of Rs. 26	000 was liable to be taxed in the assessee 's hands as dividend within the meaning of that term in section 2(6A)(c) of the Indian Income tax Act. " The reference was heard by Wanchoo	 C. J. and Modi	 J. who by their judgment dated August 24	 1956	 answered it in the affirmative. It is against this judgment that the present appeal has been preferred on a certificate granted by the High Court under section 66A(2) of the Act. The sole point for determination in this appeal is whether the sum of Rs. 26	000 received by the appellant on April 22	 1950	 is dividend as defined in. section 2(6A)(c) of the Act. That definition	 as it stood on the relevant date and omitting what is not material	 was in these terms: " 6(A) 'dividend ' includes (a) any distribution by a company of accumulated profits whether capitalised or not if such distribution entails the release by the company to its shareholders of all or any part of the assets of the company ; (c) any distribution made to the shareholders of a company out of 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;". 207 The definition of " previous year " as given in section 2(l 1)	 omitting what is not material	 is as follows: " Previous year " means in respect of any separate source of income	 profits and gains (a) the twelve months ending on the 31st day of March next preceding the year for which the assessment is to be made. " On these provisions	 the contention of the appellant is that under the definition in section 2(6A)(c) the assets of a company distributed after it has gone into liquidation will be dividend only if they represented the profits thereof accumulated during the six previous years preceding the date of the liquidation	 and that	 in the present case	 though the amounts distributed came out of the accumulated profits of the Company	 those profits had not been accumulated within the six previous years of the liquidation of the Company. It is not in dispute that the profits which were distributed had been accumulated during the years 1943 44 to 1948 49	 i.e.	 during the six years preceding the liquida tion. The point in controversy is whether those years can be said to be " previous years " within section 2(6A)(c) of the Act. The appellant contends that " previous year " as defined in section 2(l 1) of the Act means the year which is previous to the assessment year	 that accordingly when there is no year of assessment	 there can be no previous year	 that construing the words " six previous years " in section 2(6A)(c) in the light of the definition of "previous year" in section 2(l 1) of the Act	 the years 1943 44 to 1948 49 cannot be held to be previous years	 because the Indian Income tax Act came into force in the State of Rajasthan only on April 1	 1950	 and prior to that date there was at no time any law imposing tax on income in the State of Udaipur	 that there was therefore no year of assessment	 and that	 in consequ ence	 the sum of Rs. 26	000 received by the appellant on April 22	 1950	 is not a dividend as defined in section 2(6A)(c). The contention of the respondent which has been accepted by the Income tax authorities and by the learned Judges in the Court below is that the expression " six previous years" is used in section 2(6A)(c) not in the technical and restricted sense in which the 208 words " previous year " are used in section 2(11) of the Act	 and that	 in the context	 it means six consecutive accounting years preceding the liquidation of the company. The question is which of these two interpretations is the right one to be put on the language of section 2(6A)(c). The argument of Mr. Sharma for the appellant is that section 2(11) having defined the meaning which the expression 'previous year" has to bear in the Act	 that meaning should	 according to the well settled rules of construction	 be given to those words wherever they might occur in the statute	 and that that is the meaning which must be given to the words " six previous years " in section 2(6A)(c). It is to be noticed that the definitions given in section 2 of the Act are	 as provided therein	 to govern " unless there is anything repugnant in the subject or context ". Now	 the appellant contends that the words " unless there is anything repugnant " are much more emphatic than words such as " unless the subject or context otherwise requires "	 and that before the definition in the interpretation clause is rejected as repugnant to the subject or context	 it must be clearly shown that if that is adopted	 it will lead to absurd or anomalous results. And our attention was invited to authorities in which the above rules of construction have been laid down. It is unnecessary to refer to these decisions as the rules themselves are established beyond all controversy	 and the point to be decided ultimately is whether the application of the definition ins. 2(l 1) is repelled in the context of section 2(6A)(c). Turning to the language of section 2(II)	 we have this that according to the definition contained therein	 " previous year " is the year which is previous to the year of assessment	 and that means that there can be only one previous year to a given year of assessment. When section 2(6A) (c) speaks of six previous years	 it is obvious that it uses the expression " previous year " in a sense different from that which is given to it in section 2(l 1)	 because it would be a contradiction in terms to speak of six previous years in relation to any specific assessment year. It was argued that under section 13(2) of 209 the 	 words in the singular should be read as including the plural	 and that	 therefore	 the definition of "previous year" in section 2(l 1) could be read as meaning " previous years ". But section 13 only enacts a rule of construction which is to apply " unless there is anything repugnant in the and to read a " previous year " in section 2(l 1) would be to nullify the previous year " enacted therein	 and such a construction must therefore be rejected as repugnant to the context. It was then suggested that all the six previous years might be regarded as previous each to the next following year if that was itself a year of assessment	 and that such a construction would	 consistently with the contention of the appellant	 give full effect to the definition in section 2(11) of the Act. But this argument overlooks that while there may be several preceding years to a given year of assessment there can be only one previous year in relation to it	 and that it would make no sense to speak of six previous years with reference to a year of assessment. We are satisfied that it would be repugnant to the definition of " dividend " in section 2(6A)(c) to import into the words " six previous years " the definition of previous year" in section 2(l 1) of the Act. An examination of the policy underlying section 2(6A)(c) also leads to the same conclusion. When a company makes profits and instead of distributing them as dividend accumulates them from year to year and at a later date distributes them to the shareholders	 the amounts so distributed would be dividend under section 2(6A) (a)	 but when a company which has so accumulated the profits goes into liquidation before declaring a dividend and the liquidator distributes those profits to the shareholders	 it was held in Commissioners o Inland Revenue vs Burrell (1) that such distribution was not a dividend because when once liquidation intervenes	 there was no question of distribution of dividends	 and all the assets of the company remaining after the discharge of its obligations were surplus divisible among (1) 210 the shareholders as capital. It was to remove this anomaly that the Indian legislature	 following similar legislation by British Parliament in the year 1927	 enacted section 2(6A) (1) in 1939. The effect of this provision is to assimilate the distribution of accumulated profits by a liquidator to a similar distribution by a company which is working; but subject to this limitation that while in the latter the profits distributed will be dividend whenever they might have been accumulated	 in the former such profits would be dividend only in so far as they came out of profits accumulated within six years prior to liquidation. Now	 the reason of it requires that those years must be a cycle of six years preceding the liquidation	 arid that is what is meant by the words " previous years ". It was argued for the appellant that if that was what was intended by the legislature	 that was sufficiently expressed by the words " preceding the liquidation "	 and that the words previous years " would be redundant. But the words preceding years " would have meant calendar years	 whereas the accounting years of the company for ascertainment of profits and loss might be different from the calendar years	 and the words " previous year " would be more appropriate to connote the financial year of a company. Now	 it should be mentioned that when a company in liquidation distributes its current profits		 that would also be not dividend as held in Burrell 's case (1)	 and the law to that extent has been left untouched by section 2(6A)(c). And it has accordingly been held by the High Courts that the current profits of a company in liquidation which are distributed to the shareholders are not dividend within section 2(6A)(c)	 Vide Appavu Chettiar vs Commissioner of Income tax (2) and Girdhardas & Co. Ltd. vs Commissioner of Incometax (3). Therefore	 accumulated profits which are sought to be caught in section 2(6A) (c) would be the profits accumulated in the financial years preceding the year in which the liquidation takes place	 and it is this that is sought to be expressed by the words " previous years " in section 2(6A) (c). In the present case	 as the Company went into liquidation on January 18	 1950	 (1) (2) (3) 211 excluding the current year which commenced on April 1	 1949	 the six previous years will be the years 1943 44 to 1948 49. So far	 we have considered the question on the language of section 2(6A)(c) and the policy underlying it. On behalf of the respondent	 certain authorities were cited as supporting his contention that the expression it previous years " in section 2(6A) (c) is not to be interpreted in the sense in which the expression " previous year" is defined in section 2(l 1) of the Act. It is sufficient to refer to one of them	 and that is the decision of this Court in Commissioner of Income tax	 Madras vs K. Srinivasan and K. Gopalan (1). There	 the point for decision was as to the interpretation to be put on the words " end of the previous year " in section 25	 sub sections (3) and (4) of the Act which dealt with discontinuance of or succession to a business	 and it was held that the expression " previous year " in those provisions meant an accounting year expiring immediately preceding the date of discontinuance or succession. The decision is not itself relevant to the present discussion	 but certain observations therein are relied on as bearing on the point now under consideration. Mahajan	 J. delivering the judgment of the Court observed: " The expression 'previous year ' substantially means an accounting year comprised of a full period of twelve months and usually corresponding to a financial year preceding the financial year of assessment. It also means an accounting year comprised of a full period of twelve months adopted by the assessee for maintaining his accounts but different from the financial year and preceding a financial year. For purposes of the charging sections of the Act unless otherwise provided for it is co related to a year of assessment immediately following	 but it is not necessarily wedded to an assessment year in all cases and it cannot be said that the expression 'previous year ' has no meaning unless it is used in relation to a financial year. In a certain context it may well mean a completed accounting year immediately preceding the happening of a contingency." (I) 	 501 212 The learned Judges in the Court below have relied on these observations	 and quite rightly	 as supporting their conclusion that the expression " six previous years " in. section 2(6A) (c) means only the six accounting years of a company preceding the date of liquidation. The appellant sought to raise one other contention	 and that is that the Indian Companies Act came into operation in the Udaipur territory on April 1	 1951	 only by force of the Part B Stater	 Laws Act (111 of 1951)	 that during the relevant period the Mewar Industries Ltd. was not a company as defined in section 2(5A) of the Act	 and that therefore the distribution of assets made by that Company on April 22	 1950	 could not be held to be a dividend as defined in section 2 (6A) (c). But that is not a question which was referred for the opinion of the High Court under section 66(1) of the Act; nor is it even dealt with by the Tribunal and therefore cannot be said to arise out of its order. Moreover	 whether the Mewar Industries Ltd.	 is a Company as defined in the Indian Income tax Act is itself a question over which the parties are in controversy. The definition of " Company " under the Indian Income tax Act has undergone several changes from time to time	 and on the relevant date it stood as follows: " 2(6) 'Company ' means (i) any Indian Company or (ii) any association	 whether incorporated or not and whether Indian or non Indian	 which is or was assessable or was assessed as a company for the assessment for the year ending on the 31st day of March	 1948	 or which is declared by general or special order of the Central Board of Revenue to be a company for the purposes of this Act. " It is contended for the respondent that the Mewar Industries Ltd.	 was an association which was assessable as a Company for the year ending March 31	 1948	 and that it was	 in fact	 assessed; but the appellant disputes this. As the point turns on disputed question of fact. 	 it cannot be allowed to be raised at this stage. 213 In the result	 we hold that the sum of Rs. 26	000 received by the appellant on April 22	 1950	 "	as dividend as defined in section 2(6A) (c) of the Act and is chargeable to tax. The appeal fails	 and is dismissed with costs. Appeal dismissed.

Summary:
The appellant	 a resident of the once independent State of Udaipur	 held 266 shares in the Mewar Industries Ltd.	 a company registered in that State. There was no law in the State of Udaipur imposing tax on income and it was on April 1	 1950that for the first time the residents of Rajasthan	 in which the State had merged	 became liable to pay such a tax. On January 18	 1950	 the Company went into liquidation and on April 22	 1950	 the liquidator distributed a portion of the assets among the shareholders	 the appellant receiving a sum of Rs. 26	000. This sum represented the undistributed profits of the company which had accrued during the six accounting years preceding the liquidation. The income tax authorities included this sum in the taxable income of the appellant for the assessment year 1051 52 holding that it was dividend as defined in section 2(6A)(c) of the Indian Income tax Act. Under section 2(6A)(c) the distribution of accumulated profits which arose during the " six previous years " preceding the date of liquidation would be dividend. Section 2(1) defined " previous year " to mean the year which was previous to.the assessment year. The appellant contended that " previous years " in section 2(6A)(c) must be read in the light of the definition is section 2(1) and as in the present case there had been no law imposing a tax prior to April 1	 1950	 the profit for the years 1943 44 to 1948 49 cannot be held to be profits which " arose during the six previous years "	 and consequently could not be taxed as dividend as defined in section 2(6A)(c) of the Indian Income tax Act. Held	 that the said sum was dividend within the meaning of section 2(6A)(c) of the Act and was liable to tax. The definitions given in section 2 Of the Act applied unless there was anything repugnant in the subject or context. It would be repugnant to the definition of " dividend " in section 2(6A)(c) to import into the expression " six previous years " the definition of " previous year " in section 2(ii) of the Act. By the expression "previous years " in section 2(6A)(c) of the Act was meant the financial years preceding the year in which liquidation took place. Commissioner of Income tax	 Madras vs K. Srisivasan and Gopalan	 	 referred to. 205