P. N. BHAGWATI, J. ( 1 ) AN interesting question of construction of sec. 2 (6a) (c) of the Income-tax Act arises on this Reference. The Reference relates to the assessment of the assessee an individual for the assessment year 195657 the corresponding account year being Samvat Year 2011 (i. e. 27 October 1954 to 14th November 1955 ). The assessee at all material times held 18 shares in a limited Company called the Gujarat Spinning and Weaving Company Limited which we shall for the sake of convenience briefly refer as the Company. The Company went into liquidation on 23rd October 1954. On 20th November 1954 the Liquidator of the Company decided to make a distribution of Rs. 3 500 per share amongst the shareholders and pursuant to this decision the assessee received from the Liquidator on 25th November 1954 a sum of Rs. 63 0 as and by way of distribution in respect of her 18 shares. The sum of Rs. 3 500 per share distributed amongst the shareholders was composed of the following items:-RS. 1000 being distribution of capital. RS. 1570 being distribution out of capital gains, andrs. 930 being distribution out of accumulated profits. RS. 3 500/- ( 2 ) THE dispute in the present Reference is now confined only to the distribution of Rs. 1 570 per share and it is therefore not necessary to state the facts in regard to the distribution of the other two items. So far as the distribution of Rs. 1 570 per share is concerned though the certificate issued by the Liquidator described this distribution as one made out of capital gains it was in fact a distribution out of deemed profits arisen to the Company on sale of its capital assets under the second proviso to sec. 10 (2) (vii ). The Revenue sought to tax this distribution as dividend under sec. 2 (6a) (c) on the basis that it represented distribution out of accumulated profits of the Company. This claim was upheld by the Income-tax Officer but the Appellate Assistant Commissioner negatived it and on appeal being taken to the Tribunal on behalf of the Revenue the Tribunal also rejected it. The Tribunal took the view that deemed profits arising to a Company under the second proviso to sec. This claim was upheld by the Income-tax Officer but the Appellate Assistant Commissioner negatived it and on appeal being taken to the Tribunal on behalf of the Revenue the Tribunal also rejected it. The Tribunal took the view that deemed profits arising to a Company under the second proviso to sec. 10 (2) (vii) would certainly from part of the assessable income of the Company and would have to be included in computing the assessable income of the Company under sec. 10 (1) but they are not covered by the expression accumulated profits in sec. 2 (6a) (c) and the distribution of Rs. 1 570 per share can not therefore be said to be a distribution out of the accumulated profits so as to tall within the definition of dividend in sec. 2 (6a) (c ). The Revenue being dissatisfied with this view taken by the Tribunal applied for a Reference and on the application the Tribunal referred the following question for the opinion of this Court:-"whether the sum of Rs. 1 570 being a payment out of deemed profits under sec. 10 included in the amount of Rs. 3 500 distributed by the liquidator of the Company and received by the assessee as a shareholder was dividend within the meaning of sec. 2 (6a) (c) of the Indian Income-tax Act 1922?" ( 3 ) IT would be seen from the way in which the question is framed that the postulate of the question is that the distribution was out of deemed profits of the Company under the second proviso to sec. 10 (2) (vii) and this was in fact common ground between the parties before the Tribunal as appears clearly from the order of the Tribunal. Being a distribution out of deemed profits of the Company under the second proviso to sec. 10 (2) (vii) the question is :- can the distribution be said to be a distribution out of accumulated profits so as to be liable to be regarded as dividend under sec. 2 Or in other words can the deemed profits be treated as accumulated profits for the purpose of sec. 2 (6a) (c)? ( 4 ) THE determination of this question depends on the true character of the receipt which we have conveniently described as deemed profit under the second proviso to sec. 10 (2) (vii ). 2 Or in other words can the deemed profits be treated as accumulated profits for the purpose of sec. 2 (6a) (c)? ( 4 ) THE determination of this question depends on the true character of the receipt which we have conveniently described as deemed profit under the second proviso to sec. 10 (2) (vii ). Is the receipt real profit or is it fictionally regarded as profit though in fact it is not? This inquiry is necessary because as observed by Lord Radcliffe in St. Aubyn (L. M.) and others v. Attorney-General (1951) 2 All E. R. 473:-"the word "deemed" is used a great deal in modern legislation Sometimes it is used to impose for the purposes of a statute an artificial construction of a word or phrase that would not otherwise prevail. Sometimes it is used to put beyond doubt a particular construction that might otherwise be uncertain. Sometimes it is used to give a comprehensive description that includes what is obvious what is uncertain and what is in the ordinary sense impossible. "or to quote the words of Lord Simonds in Public Trustee v. Inland Revenue Commissioners (1960) 1 All E. R. 1 at page 4 the word deemed is a word which as my noble and learned friend Lord Radcliffe has said in another case is apt to include the obvious the uncertain and the impossible. It does not therefore follow merely because the word deemed is used that but for the deeming provision the receipt dealt with in the second proviso to sec. 10 (2) (vii) would not be profit. We must examine the true nature of the receipt and determine whether it is profit apart from the deeming provision in the second proviso to sec. 10 If it is then of course it would be covered by sec. 2 (6a) (c) and there would be no difficulty in the way of the Revenue in taxing it when distributed amongst the shareholders. But if it is not and it is the deeming provision which fictionally converts it into profit then we will have to see how far the fiction goes:- Does the fiction make it profit only for the purpose of computation of income of the Company under sec. 10 (1) or does the fiction make it profit for all purposes including the purpose of sec. 2 (6a) (c) ? ( 5 ) NOW sec. 10 (1) or does the fiction make it profit for all purposes including the purpose of sec. 2 (6a) (c) ? ( 5 ) NOW sec. 10 lays down the rules for computation of profits and gains of an assessee under the head Profits and gains of business profession or vocation. Sub-sec. (1) provides that tax shall be payable by an assessee under this head in respect of profits or gains of any business profession or vocation carried on by him in the year of account. Sub-sec. (2) says what allowances shall be taken into account in computing the profits and gains of such business profession or vocation and one of the allowances is that mentioned in Clause (vii) which is in the following terms:-" (VII) in respect of any such building machinery or plant which has been sold or discarded. demolished or destroyed the amount by which the written down value thereof exceeds the amount for which the building machinery or plant as the case may be is actually sold or its scrap value;" ( 6 ) UNDER this clause in computing the profits and gains of an assessee the amount by which the written down value of any building machinery or plant which has been sold discarded demolished or destroyed exceeds the amount for which the building machinery or plant is actually sold or its scrap value is to be allowed as a deduction. It is in the nature of what is called a balancing charge allowed in order to recoup the balance of the capital lost after deducting the depreciation allowance already charged to the profits of the earlier years so as to reflect the true profit of the assessee which can only be arrived at after taking into account the loss in the value of the capital asset arising in the process of earning profit that being the operating cost of the asset. But what is to happen if the amount for which the building machinery or plant is sold exceeds the written down value? For that provision is made in the second proviso to clause (vii) which reads as follows:-"provided further that where the amount for which any such building. But what is to happen if the amount for which the building machinery or plant is sold exceeds the written down value? For that provision is made in the second proviso to clause (vii) which reads as follows:-"provided further that where the amount for which any such building. machinery or plant is sold whether during the continuance of the business or after the cessation thereof exceeds the written down value so much of the excess as does not exceed the difference between the original cost and the written down value shall be deemed to be profits of the previous year in which the sale took place. " ( 7 ) THE excess of the sale price over the written down value is to be deemed to be the profit of the assessee to the extent of the total depreciation allowance granted in the past and it is to be deemed to be such profit in the year of account in which the capital asset is sold. It would be seen that a deeming provision is enacted in this proviso and the object clearly is to convert that which is not profit into profit. When a capital asset is sold what is received by the assessee is capital return and not profit. Of course when we say this we are referring only to so much of the sale price as does not exceed the cost of the capital asset. The excess of the sale price over the cost would certainly be capital gain but the sale price to the extent to which it does not exceed the cost would be nothing but return of capital and no part of it even in excess of the written down value can be said to partake of the character of profit. The receipt of excess over written down value on sale of capital asset would therefore be in the nature of capital return and not profit. But the legal fiction in the second proviso to section 10 (2) (vii) converts it into profit for the purpose of assessment of the taxable income of the assessee. The deeming provision in the second proviso to section 10 (2) (vii) is thus used to include the impossible that is that which is capital return and not profit in the category of profit. The deeming provision in the second proviso to section 10 (2) (vii) is thus used to include the impossible that is that which is capital return and not profit in the category of profit. This view which we are inclined to take on principle is amply supported by the following observations of the Supreme Court in Commissioner of Income-tax v. Bipinchandra Maganlal and Co. (1961) 41 I. T. R. 290:-"what in truth is a capital return is by a fiction regarded for the purposes of the Act as income. Because this difference between the price realized and the written down value is made chargeable to income-tax its character is not altered and it is not converted into the assessees business profits. It does not reach the assessee as his profits:- it reaches him as part of the capital invested by him the fiction created by sec. 10 (2) (vii) second proviso notwithstanding. " ( 8 ) THESE observations preclude any further discussion of the question and in view of these observations the receipt of excess over written down value on sale of capital asset cannot be held to be profit independently and apart from the legal fiction enacted in the second proviso to sec. 10 (2) (vii ). ( 9 ) MR. G. N. Joshi learned advocate appearing on behalf of the Revenue relied on a decision of the Court of Chancery in England in Bishop v. Smyrna and Cassaba Railway Company (1895) 2 Ch. 596 and urged that this decision supported his contention that the receipt of excess over written down value on sale of capital asset would be profit even according to the accepted connotation of that word without invoking the aid of the legal fiction contained in the second proviso to section 10 (2) (vii ). In that case an investment made by a Limited Company on capital account having fallen in value the amount of depreciation was in the half-yearly accounts debited to revenue. When the Company afterwards went into liquidation the investment had risen in value and the Liquidator in his accounts credited to revenue as appreciation the amount which had previously-been debited as depreciation. The question arose whether this was rightly done. Kekewich J. held that the amount of appreciation was rightly credited by the Liquidator to revenue and that it must be treated as income. The question arose whether this was rightly done. Kekewich J. held that the amount of appreciation was rightly credited by the Liquidator to revenue and that it must be treated as income. and not as capital since it was merely a restitution to profits of what had previously been taken from profits. This decision really deals with a case where a capital asset was revalued in the accounts having regard to the appreciation which had resulted in its value over a course of time. Now obviously if depreciation was debited to Revenue appreciation must likewise be debited to revenue for otherwise it would not reflect the correct state of affairs so far as the profit and loss position of the Company was concerned. But where as in the present case a capital asset is sold and on sale realises a price in excess of the written down value the excess which is received is mere return of capital invested in the capital asset and that cannot be regarded as profit. Of course the very fact that excess is realised shows that depreciation charged to revenue in the earlier years was in fact over-charged and that the profits of the earlier years were in fact more than what appeared on the accounts but that would not mean that the excess is profit received by the assessee in the year in which the capital asset is sold. What we are concerned with in the present Reference is only a limited question namely whether the receipt of excess over written down value constitutes profit and that we think it does not. The decision cited by Mr. G. N. Joshi does not assist the argument urged on behalf of the Revenue. Moreover if the decision were construed as laying down the proposition that where excess over written down value is received by an assessee on sale of capital asset it represents profit notwithstanding that the price received by the assessee is less than the original cost of the capital asset such proposition would be contrary to the observations of the Supreme Court to which we have just referred. ( 10 ) MR. ( 10 ) MR. G. N. Joshi then argued that even if the view be taken that but for the fiction in the second proviso to section 10 (2) (vii) the receipt of excess over written down value in case of sale of capital asset would not be profit the fiction in his submission made all the difference and since the receipt was by the fiction converted into profit it was liable to be regarded as profit for all purposes. The character of profit attached to the receipt by reason of the fiction and the fiction was required to be taken to its logical conclusion which extended not only to the provisions of section 10 (1) but also to the provisions of section 2 (6a) (c ). The argument of the Revenue was that once the second proviso to sec. 10 (2) (vii) required us to treat the receipt as profit we must not allow our imagination to boggle when it comes to the inevitable corollaries of that state of affairs and we must regard the receipt as profit for all purposes including the purpose of section 2 (6a) (c ). Now it is undoubtedly a well-settled principle that when a legal fiction is created the legal fiction must be carried to its logical conclusion and full effect must be given to the legal fiction as if the putative state of affairs in fact existed. As observed by Lord Asquith of Bishopstone in East End Dwellings Co. Ltd. v. Finsbury Borough Council (1952) A. C. 109 at page 131:-"if you are bidden to treat an imaginary state of affairs as real you must surely unless prohibited from doing so also imagine as real the consequences and incidents which if the putative state of affairs had in fact existed must inevitably have flowed from or accompanied it. One of these in this case is emanicipation from the 1939 level of rents. The statute says that you must imagine a certain state of affairs; it does not say that having done so you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs. One of these in this case is emanicipation from the 1939 level of rents. The statute says that you must imagine a certain state of affairs; it does not say that having done so you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs. " ( 11 ) BUT it is equally well settled and that is a principle which should not be lost sight of that legal fictions are created only for a definite purpose and they are limited to the purpose for which they are created and should not be extended beyond their legitimate field. The legal fiction is of course to be carried to its logical conclusion but that must be within the framework of the purpose for which it is created. When a statute enacts that something shall be deemed to have been done which in fact and truth was not done the Court is entitled and bound to ascertain for what purposes and between what persons the statutory fiction is to be resorted to and full effect must be given to the statutory fiction and it should be carried to its logical conclusion. Vide the State of Bombay v. Pandurang Vinayak Chaphalkar and Others (1953) S. C. R. 773. The principle that a legal fiction must be limited to the purpose for which it is created was also applied by N. H. Bhagwati J. in Bengal Immunity Company Limited v. State of Bihar (1955) 2 S. C. R. 603 at 787 where the learned Judge observed:-"a legal fiction pre-supposses the correctness of the state of facts on which it is based and all the consequences which flow from that state of facts have got to be worked out to their logical extent. But due regard must be had in this behalf to the purpose for which the legal fiction has been created. If the purpose of this legal fiction contained in the Explanation to Article 286 (1) (a) is solely for the purpose of sub-clause (a) as expressly stated it would not be legitimate to travel beyond the scope of that purpose and read into the provision any other purpose howsoever attractive it may be. If the purpose of this legal fiction contained in the Explanation to Article 286 (1) (a) is solely for the purpose of sub-clause (a) as expressly stated it would not be legitimate to travel beyond the scope of that purpose and read into the provision any other purpose howsoever attractive it may be. The legal fiction which was created here was only for the purpose of determination whether a particular sale was an outside sale or one which could be deemed to have taken place inside the state and that was the only scope of the provision. It would be an illegitimate extension of the purpose of the legal fiction to say that it was also created for the purpose of converting the inter-State character of the transaction into an intra-State one. This type of conversion could not have been in the contemplation of the Constitution makers and is contrary to the express purpose for which the legal fiction was created as set out in the Explanation to Article 286 (1) (a ). " ( 12 ) THE Supreme Court applied the same principle also in the case of Commissioner of Income-tax v. Elphinstone Spg. and Wvg. Mills Co. (1960) 40 I. T. R. 142 and this is what they said in regard to the fiction created by the proviso to paragraph B of Part I of the First Schedule to the Finance Act 1951:-". . . . . . ALL that the fiction does is to bring profits of back years into the immediately preceding previous years so that the requirements of the income-tax law may be complied with. As we have already stated this fiction cannot be carried further than what it is intended for; it cannot be used to make these profits take the place of total income which did not exist in the previous year and to which the rate is to be applied under the terms of the proviso. " ( 13 ) IT would therefore be seen that when the Court is called upon to construe the effect of a legal fiction the Court must first ascertain what is the purpose for which the legal fiction is enacted and then in the field of that purpose the Court must give full effect to the legal fiction by carrying it to its logical conclusion. ( 14 ) NOW in the present case what is the purpose of the legal fiction enacted in the second proviso to section 10 (2) (vii)? As the context and the setting in which this proviso occurs show the purpose of the fiction is to tax the assessee in respect of the excess over written down value realised by him on sale of a capital asset. Section 10 (1) deals with computation of income of a business carried on by an assessee in the year of account and section 10 (2) says what allowances shall be made in computing profits and gains of such business and in that connection the second proviso to section 10 (2) (vii) provides that the excess over written down value received by the assessee on sale of a capital asset shall be deemed to be the profit of the assessee in the previous year in which the sale took place so that such excess may be included in the computation of the profits and gains of the assessee and may be brought to tax in his hands. The reason for which this legal fiction is introduced is clear and may best be described in the words of the Supreme Court itself in Commissioner of Income-tax v. Bipinchandra Maganlal and Co. (supra) :-"where in the previous year by the depreciation allowance the taxable income is reduced for those years and ultimately the asset fetches on sale an amount exceeding the written down value i. e. the original cost less depreciation allowance the Revenue is justified in taking back what it had allowed in recoupment against wear and tear because in fact the depreciation did not result. But the reason of the rule does not alter the real character of the receipt. Again it is the accumulated depreciation over a number of years which is regarded as income of the year in which the asset is sold. The difference between the written down value of an asset and the price realized by sale thereof though not profit earned in the conduct of the business of the assessee is notionally regarded as profit in the year in which the asset is sold for the purpose of taking back what had been allowed in the earlier years. The difference between the written down value of an asset and the price realized by sale thereof though not profit earned in the conduct of the business of the assessee is notionally regarded as profit in the year in which the asset is sold for the purpose of taking back what had been allowed in the earlier years. " ( 15 ) THE legal fiction in other words is created in order to enable the Revenue to take back what it had given by way of depreciation allowance in preceding years since what was given in preceding years was in excess of that which ought to have been given. Unless this were done the result would be to recoup the assessee an amount in excess of the real operating cost of the capital asset and therefore in order to take back what had been wrongly allowed in the earlier years the true character of the receipt is masked and by the legal fiction the receipt is treated as if it were profit for the purpose of computation of the assessable income of the assessee so that it would be brought to tax as such in the hands of the assessee. This being the purpose of the enactment of the legal fiction the legal fiction must be limited to the field of that purpose:- of course within the framework of that purpose the legal fiction must be given full effect and must be carried to its logical consequence but it cannot be availed of for a different purpose. Having been enacted for the purpose of enabling the Revenue to tax the receipt of excess over written down value as soon as such receipt is taxed the fiction would be exhausted and would not operate in any other field unconnected or unrelated to the purpose for which the fiction is created. It is therefore clear that the fiction must be limited to the purpose of computation of the assessable income of the assessee under section 10 and it cannot be extended to other provisions such as section 2 (6a) (c) which are unconnected with the assessment of the assesee and therefore unconnected with the purpose for which the fiction is created. It is therefore clear that the fiction must be limited to the purpose of computation of the assessable income of the assessee under section 10 and it cannot be extended to other provisions such as section 2 (6a) (c) which are unconnected with the assessment of the assesee and therefore unconnected with the purpose for which the fiction is created. We must accordingly reject the contention of the Revenue that the words accumulated profits in section 2 (6a) (c) include receipt of excess over written down value on sale of capital assets which though not profit in the accepted connotation of that word is deemed to be profit by the legal fiction enacted in the second proviso to sec. 10 (2) (vii ). ( 16 ) IT was contended on behalf of the Revenue that if we take this view an anomalous result would arise in that if the excess over written down value received by the Company on sale of its capital assets had been distributed among the shareholders while the Company was going on it would have been dividend but if it is distributed after the Company has gone in liquidation it would not be liable to be regarded as dividend. Now it is undoubtedly true and that was not disputed by Mr. Palkhiwala learned advocate appearing on behalf of the assessee that if this excess had been distributed amongst the shareholders while the Company was functioning it would have been dividend within the ordinary meaning of that word but it may be pointed out that it would have been dividend not because of the character of profit attaching to such excess in the hands of the Company but because every distribution made by a Company to its shareholders which is otherwise than by way of return of capital is dividend. Moreover it must be remembered that what we are concerned to inquire in this Reference is not whether the distribution of this excess while the Company was going on would have been dividend or not. The only question before us is whether the distribution of this excess falls fairly and squarely within the terms of sec. 2 (6a) (c) and for reasons which we have already given we are of the view that it does not. The only question before us is whether the distribution of this excess falls fairly and squarely within the terms of sec. 2 (6a) (c) and for reasons which we have already given we are of the view that it does not. It may be that the distribution of this excess would escape tax on the view we are taking but that is not a matter which should weigh with us in the construction of the language of the section. In a taxing statute one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax there is no presumption as to a tax. Nothing is to be read in nothing is to be implied. One can only look fairly at the language used and if we do so the conclusion to which we have arrived is the only conclusion which can be reached. We are therefore of the opinion that the distribution of Rs. 1 570 per share was not a distribution out of accumulated profits of the Company so as to be liable to be regarded as dividend within the meaning of sec. 2 (6a) (c ). ( 17 ) IN the result we answer the question referred to us in the negative. The Commissioner will pay the costs of the Reference to the assessee. Order accordingly .