K. T. DESAI, J. ( 1 ) THIS is a reference under sec. 66 (1) of the Indian Income Tax Act 1922 The assessment year with which were concerned is the 1955-56 the accounting year being the calendar year 1954. The assessee were shareholders in a company incorporated in accordance with the law prevailing in East Africa called Kawampe Cotton Co. Ltd. Kampala. Having regard to the provisions contained in the Indian Income Tax Act 1922 this company was regarded as a company for the purpose of the Indian Income Tax Act. This company went into voluntary liquidation on 22nd July 1954. In the month of August 1954 the liquidator of the company made payments to the assessees who were the share-holders in that company. The amounts paid to the assessees were received by the assessees on 27th August 1954. The following tabular statement shows the names of the assessees the number of shares of the company held by them. the amount received by them referable to the share capital the amounts received by them referable to capital profit the amount of accumulated profits treated as dividend the amount of total distribution and the amounts referable to accumulated profits of six previous years of the company preceding the date of liquidation: @@@ ( 2 ) THE Income Tax Officer held that the amounts distributed as aforesaid referable to the accumulated profits of previous years of the company fall within the category of dividend under sec. 2 (6a) (c) of the Indian Income Tax Act 1922 as it stood prior to the amendment made therein by the Finance Act 1955 and were liable to be taxed as dividend. The matter was carried in appeal before the Appellate Assistant Commissioner who upheld the decision of the Income Tax Officer and dismissed the appeal. The matter was carried further before the Income Tax Appellate Tribunal. The Income Tax Appellate Tribunal upheld the decision of the Income Tax Officer and dismissed the appeal The matter has now been referred to us for the determination of the following questions : (1) Whether for the assessment year 1955-56 any portion of the amount received by the applicant from the liquidator of Kawampe Cotton Co. Ltd. is at all taxable as a dividend by virtue of sec. 2 (6a) (c) of the Indian Income Tax Act ? Ltd. is at all taxable as a dividend by virtue of sec. 2 (6a) (c) of the Indian Income Tax Act ? (2) If the answer to the above question is in the affirmative whether the said clause (c) as it stood before its amendment by the Finance Act 1955 or as it stood after such amendment. is applicable to the present case ? ( 3 ) SECTION 2 (6a) (c) as it existed before the amendment made therein by the Finance Act 19555 ran as under :2 dividend includes (a) xx xx (b) xx xx (c) any distribution made to the shareholders of a company cut 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 data of liquidation shall be so included: ( 4 ) BY sec. 3 of the Finance Act 1955 from the aforesaid sub-clause (c) the proviso was deleted. By sec. 20 of the Finance Act 1955 the amendment to the Income Tax Act made by the aforesaid sec. 3 was to have effect on and from the 1st day of April 1955. The principal contention urged before us related to the interpretation of sec. 2 (6a) (c ). The words used in the section are that any distribution made to shareholders of a company out of accumulated profits of the company on the liquidation of the company are liable to be regarded as dividend. It was urged by Mr. Palkhiwala the learned counsel for the assessees that once a company goes into liquidation it is not possible to say that there were any assets in the hands of the liquidator which could be regarded as constituting accumulated profits of the company. He urged that upon the liquidation of a company profits shed their character as profits and the entire net assests of the company become a surplus fund in which the element of profit as distinguished from capital did not exist. He further urged that since the section charges only the post liquidation distribution which has been made out of accumulated profits the legislation has mis-fired because no such profits can be said to exist after such legislation. He further urged that since the section charges only the post liquidation distribution which has been made out of accumulated profits the legislation has mis-fired because no such profits can be said to exist after such legislation. Strong reliance in support of this contention has been placed upon a decision reported in (1929) 2 K. B. page 52 in the case of Inland Revenue Commissioners. George Burrel. In that cases on the winding up of a company a distribution was made by the liquidator amongst the shareholders and the amount so distributed was referable to undivided profits of the previous years and of the year in which the winding up occurred. It was held that super tax was not payable on the undivided profits as income because in the winding up they had ceased to be profits and were assets only. In the judgment of Pollock Master of Rolls it has been stated at page 62 that the problem that had to be solved in that case was whether the quota received by each shareholder was a part of his annual profits or gains and so subject to super tax. In considering this question the Master of Rolls observed that it was a misapprehension after the liquidator had assumed his duties to continue the distinction between surplus profits and capital. He quoted with approval the remarks of Lord Justice Lindley in the case of In re Armitage reported in (1893) 3 Ch. 337 at page 346 where it had been observed that the moment the company got into liquidation there was an end of all power of declaring dividends and of equalizing dividends and the only thing that the liquidator had to do was to turn the assets into money and divide the money among the shareholders in proportion to their shares. The Master of Rolls further observed that it was not right to split up the sums received by the shareholder into capital and income by examining the accounts of the company when it carried on business and disintegrating the sum received by the shareholders subsequently into component parts based on an estimate of what might possibly have been done but was not done. Lord Justice Atkin in the course of his judgment observes that when the company capitalizes undivided profits and distributes them as capital say as bonus shares the shareholder does not bring into account for super tax the income tax paid by the company thereon so also in the case of accumulated profits which have become surplus assets and are distributed and received as such. ( 5 ) MT. Palkhiwala is right when he contends that when a distribution is made by the liquidators of a company in liquidation the distribution is made out of the assets of the company and that if the provisions contained in sec. 2 (6a) (c) had not been enacted by the legislature it was not possible to regard the dividend distributed by a liquidator out of the assets of a company in liquidation as a dividend for the purpose of taxation. As observed by the Supreme Court in the case reported in an I. T. R. page 400 Dhandhania Kedia and Co. v. Commissioner of Income Tax it was to remove the anomalous situation which arose out of the decision in in the case of Inland Revenue Commissioners v. George Burtel that the Indian legislature following similar legislation by British Parliament in the year 1927 enacted sec 2 (6a) (c) in the year 1939. The question which we have now to consider is whether the legislature has carried out its intent in an effective manner by the way in which sec. 2 (6a) (c) has been enacted. We have to read the provisions contained in sec. 2 (6a) (c) as a whole. Reading the section as a whole it is clear that what the legislature intended to hit was a distribution made to the shareholders of a company which is referable to accumulated profits which arose during the six previous years of the company preceding the date of liquidation The language used in sub-sec. (c) of sec. 2 (6a) namely distribution made to the shareholders of a company out of accumulated profits of the company is not apt. Once a company goes into liquidation ail the assets of the company go into the hands of the liquidator and it is out of these assets that a distribution has to be made. (c) of sec. 2 (6a) namely distribution made to the shareholders of a company out of accumulated profits of the company is not apt. Once a company goes into liquidation ail the assets of the company go into the hands of the liquidator and it is out of these assets that a distribution has to be made. The Privy Council had to consider the question of the nature of such distribution whilst dealing with the case of a firm in the case reported in (1935) 3 I. T. R. page 205 Commissioner of Income tax Madras v. P. R. A. L. Muthu Karuppan Chettiyar. In the course of its judgment the Privy Council has observed that the liquidator may apply sums earned as profits in paying capital liabilities and capital assets in paying revenue liabilities. What he distributes is a lump sum and no reconstruction into a division of capital and profits is necessary or in many cases possible. It thereafter proceeds to consider that when a distribution is made on the dissolution of a firm the nature of such distribution is distinct and different from the distribution made on the winding up of a company by the liquidator. The question which we will now proceed to consider having regard to the use of inapt language by the legislature is whether the legislature has completely mis-fired or whether the legislative intent has been expressed with sufficient certainty to make the provisions applicable to any set of circumstances As observed in the speech of Viscount Simon in the case of Rex v. General Commissioners of Income Tax for the City of London (ex-parte Gibbs and Others) reported in 24 Tax Cases page 221 at page 244 our duty is to find out what the legislature must be taken to have really meant by the expression which it has used without necessarily attributing to it a precise appreciation of the technical appropriateness of its language We have to read the provisions of the section as a whole. We have to read the language of the proviso and see what light is thrown upon the earlier words used by the legislature having regard to what is stated in the proviso. We have to read the language of the proviso and see what light is thrown upon the earlier words used by the legislature having regard to what is stated in the proviso. The proviso makes it abundantly clear that only the accumulated profits which have been distributed on the liquidation of the company which arose during the six previous years of the company preceding the date of liquidation are intended to be covered by the expression dividend as used by the legislature. When we read the provisions contained in sub-sec. (c) and the words used in the proviso the intention of the legislature is clear that what was sought to be drawn into the net cast by the use of the word dividend was the distribution made to the shareholders of a company referable to accumulated profits of the company which arose during six previous years of the company preceding the date of liquidation. What the legislature intended to convey by the words out of accumulated profits of company was to indicate the source from which the money distributed came. If the distribution is referable to the accumulated profits of the company then such distribution would be a distribution covered by the expression dividend. Even though it would not be proper to describe such distribution as a distribution made out of the accumulated profits of the company and it would not be possible on the winding up of a company to say that any distribution has been made by the liquidator out of the accumulated profits of the company the legislative intnnt is clear and leaves so room or doubt that what was intended to be covered was a distribution referable to the accumulated profits of the company of the previous six years of the company preceeding the date of liquidation. ( 6 ) RELIANCE was placed by Mr. Palkhiwala upon the observations of Bhagwati J. in the Supreme Court case reported in A. I. R. 1957 Supreme Court page 657 at page 661-A V. Fernandez v. State of Kerala. Justice Bhagwati in that case has observed as under:-IT is no doubt true that in construing fiscal statutes and in determining the liability of a subject to tax one must have regard to the strict letter of the law and not merely to the spirit of the statute or the substance of the law. Justice Bhagwati in that case has observed as under:-IT is no doubt true that in construing fiscal statutes and in determining the liability of a subject to tax one must have regard to the strict letter of the law and not merely to the spirit of the statute or the substance of the law. If the Revenue satisfies the Court that the case falls strictly within the provisions of the law the subject can be taxed. If on the other hand the case is not covered within the four corners of the provisions of the taxing statute no tax can be imposed by inference or by analogy or by trying to probe into the intentions of the legislature and by considering what was the substance of the matter. ( 7 ) WE have also been reminded of the words of Lord Simonds in the case of Wolfson v. Commissioners of Inland Revenue in his speech reported in 31 Tax Cases page 141 where he has observed that it is not the function of a court of law to give to words a strained and unnatural meaning because only thus will a taxing section apply to a transaction which had the legislature thought of it would have been covered by appropriate words. ( 8 ) IN the present case what we are seeking to do is not to strain the language which has been used by the legislature or to give the language an unnatural meaning. The meaning sought to be given by the legislature to the words used by the legislature has been clearly stated by the legislature when enacting the proviso. The proviso in express terms lays down that only the accumulated profits which arose during the six previous years of the company preceding the date of liquidation constitute the accumulated profits referred to in the earlier part of the section. ( 9 ) OUR attention was drawn by the learned Advocate General who appears on behalf of the Commissioner to two decisions reported in (1955) 27 I. T. R. page 634 in the case of Sheth Haridas Achratlal v. Commissioner of Income Tax Bombay North Kutch and Saurashtra Baroda and the case reported in 45 I. T. R. 294 Jayantilal and Co. Ltd. v. Income Tax Officer Ahmedabad. In both these cases the provisions contained in sec. 2 (6a) (c) came up for consideration before the Court. Ltd. v. Income Tax Officer Ahmedabad. In both these cases the provisions contained in sec. 2 (6a) (c) came up for consideration before the Court. There are general words used in both these decisions which support the case of the Advocate General but the precise point which has been raised before us was not raised in any of the said cases and those cases cannot be relied upon for the purpose of throwing light upon the questions which we have to deal with in the present case. In our view the words out of accumulated profits of the company used in the section under consideration merely refer to the source from which the moneys distributed by the liquidator of a company came and even though on the liquidation of a company profits may shed their character as profits and the entire net assets of the company become a surplus fund in the hands of the liquidator of the company the provisions of the section would be satisfied if for the purpose of distribution to the shareholders moneys distributed are attributable to this source. ( 10 ) THE answer to the first question therefore will be that in respect of each applicant the portion of the amount received by the applicant from the liquidator of the Kawampe Cotton Co. Ltd. which is referable to the accumulated profits of the company is taxable as dividend by virtue of sec. 2 (6a) (c) of the Indian Income Tax Act. ( 11 ) WE shall now proceed to deal with the second question that has been raised. The answer to that question depends upon whether the amendment made in the definition of the expression dividend in section 2 by the Finance Act 1955 is applicable to the facts of the case. The question in short is whether the definition as it stood after the amendment made by the Finance Act 1955 is applicable or the definition as it stood immediately prior thereto is applicable. By the amendment made by the Finance Act 1955 the proviso has been deleted with the result that after the coming into force of the Finance Act 1955 the distribution made to the shareholders of a company referable to accumulated profits of the company is regarded as dividend and made subject to tax. The limitation of six years imposed by the proviso has bean done away with. The limitation of six years imposed by the proviso has bean done away with. Section 3 of the Finance Act 1955 whereby the amendment has been effected came into force from Ist April 1955. The provisions of the Finance Act 1955 apply to assessments made for the assessment year 1955-56. In view of the provisions contained in sec. 3 of the Indian Income Tax Act 1922 the provisions of the Finance Act 1955 will apply when considering the income of an assessee in respect of the previous year i. e. the calendar year 1954 of the assessee. It is not disputed that Income Tax Act as amended at the date of the relevant Finance Act applies for the purpose of assessment and any alteration which comes into force on the Ist of April of a finance year must apply to the assessment for that year. The law on the subject is now well settled by the decisions reported in (1945) 13 I. T. R page 221 Maharajah of Pithapuram v. Commissioner of Income-Tax Madras (1954) 26 I. T. R. page 626 Scindia Steam Navigation Co. Ltd. v. Commissioner of Income-Tax Bombay City and (1961) 42 I. T. R. page 589-Commissioner of Income Tax Bombay v. Scindia Steam Navigation Co. Ltd. ( 12 ) OUR answer to the second question is that clause (c) as it stood after its amendment by the Finance Act 1955 is applicable to the present case in respect of each of the assessees. ( 13 ) THE assessees will pay to the Commissioner the costs of the reference. Order accordingly. .