JUDGMENT : A.R. Bakshi, J. 1. The question for consideration in this Reference under section 66 (I) of the Indian Income-tax Act, 1922, is whether the sum of Rs. 75,000 or any part thereof could be treated as dividend under section 2(6-A)(c) of that Act. This amount represents the seventh distribution made by the Liquidator of the assessee Company on 24th July, 1957 for the assessment year 1958-59 at the rate of Rs. 30 per share. The assessee company had gone into voluntary liquidation on 23rd August, 1952. On the date of going into liquidation, the company had accumulated profits amounting to Rs. 5,34,041. Two distributions were made by the Liquidator in the accounting year ending 30th September, 1952 relevant to the assessment year 1953-54 amounting to Rs. 17,25,000. Three more distributions were made in the accounting year ending 30th September, 1953 relevant to the assessment year 1954-55 amounting to Rs. 3 lakhs. A sixth distribution was made in the accounting year ending 30th September, 1954 relevant to the assessment year 1955-56 amounting to Rs. 2 lakhs. The seventh distribution with which we are now concerned, was made during the accounting year ending 30th September, 1957 relevant to the assessment year 1958-59 amounting to Rs. 75,000. It is this last distribution that was treated by the Income-tax Officer as dividend within the meaning of section 2(6-A)(c) of the Income-tax Act. Earlier, when the distribution was made in the accounting year ending 30th September, 1952, an amount of Rs. 50,500 was treated as dividend within the meaning of section 2(6-A)(c) of the Income-tax Act for the purpose of the assessment in the case of the shareholders of the assessee company. Thus as against the accumulated profits of Rs. 5,34,041 and the paid-up capital of the company of Rs. 25 lakhs as at the date of the liquidation, the total amount distributed upto the accounting year 30th September, 1957 was Rs. 23 lakhs and earlier only an amount of Rs. 50,500 was held to be dividend. When in the year of assessment now under consideration a further amount of Rs. 75,000 was distributed, the present controversy has arisen. 2. On behalf of the assessee company, it was contended that the entire accumulated profits should be considered to have exhausted their chargeability at the time of the first distribution considered by the Income-tax Officer in the amount of Rs. 75,000 was distributed, the present controversy has arisen. 2. On behalf of the assessee company, it was contended that the entire accumulated profits should be considered to have exhausted their chargeability at the time of the first distribution considered by the Income-tax Officer in the amount of Rs. 17,25,000 for the assessment year 1953-54. It was contended on behalf of the assessee that the accumulated profits of the assessee at the date of liquidation were only Rs. 5,34,041 and the distribution of Rs. 17,25,000 made in the year ending 30th September, 1952 therefore exhausted the whole of the accumulated profits and the further distributions thereafter, made, including the distribution of Rs. 75,000 in the year of account could not be said to be attributable to the accumulated profits of the assessee. The assessee further contended that only a sum of Rs. 50,500 was treated as dividend in the assessment year 1953-54, but that was due to the proviso to the relevant clause of the section, which limited the distribution liable to be regarded as dividend to that part which was referable to the accumulated profits of the six previous years preceding the date of liquidation and it did not mean that the rest of the distribution was not referable to the accumulated profits of the earlier years. It was also urged by the assessee that the distribution in the accounting year ending 30th September, 1954 relevant to the assessment year 1955-56 amounting to Rs. 2 lakhs should, in any case, be held to have exhausted the accumulated profits to that extent. On the other hand, it was contended on behalf of the Revenue that considering the language of section 2 (6-A) defining the word 'dividend ' as applicable for the assessment year 1958-59 and on a proper construction of the section in its entirety, the distribution which relates to the present matter would be caught as dividend as it fell within the purview of section 2(6-A)(c) of the Income-Tax Act. It was contended on behalf of the Revenue that during any assessment for the period prior to the amendment of section 2(6-A)(c), the Department would not be concerned with any other fund except that limited fund in respect of a period of six years as prescribed by the proviso to the section and that they would therefore have no power to inquire and there was therefore no inquiry as to whether the balance was from accumulated profits or whether it was referable to such accumulated profits. So long as the proviso subsisted, there was no question of treating the funds lying with the Liquidator as being two separate funds, i.e., capital and accumulated profits except that so far as Income-tax Act was concerned that part of it which fell within the ambit of the sub-section would, by the fictional concept created by the Legislature, be regarded and taxed as dividend. 3. Before we discuss, the question relating to the applicability of section 2(6-A)(c), it would be necessary to refer to the relevant provisions of that section which obtained before 1955 and thereafter. 3. Before we discuss, the question relating to the applicability of section 2(6-A)(c), it would be necessary to refer to the relevant provisions of that section which obtained before 1955 and thereafter. Clause (6-A) of section 2 prior to its amendment by the Finance Act, 1955 stood as under :- "'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; (b) any distribution by a company of debentures or debenture-stock to the extent to which the company possesses accumulated profits, whether capitalised or not; (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; and (d) any distribution by a company on the reduction of its capital to the extent to which the company possesses accumulated profits which arose after the end of the previous year ending next before the 1st day of April, 1933, whether such accumulated profits have been capitalised or not: Provided that 'dividend' does not include a distribution in respect of any share issued for full cash consideration which is not entitled in the event of liquidation to participate in the surplus assets, when such distribution is made in accordance with sub-clause (c) or (d) : Provided further that the expression 'accumulated profits' wherever it occurs in this clause, shall not include capital gains arising before the 1st day of April, 1946, or after the 31st day of March, 1948." 4. That clause as amended by the Finance Act, 1955, reads thus : "'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 it shareholders of all or any part of the assets of the company; (b) any distribution by a company of debentures or debenture-stock or deposit certificates in any form, whether with or without interest to the extent to which the company possesses accumulated profits, whether capitalised or not; (c) any distribution made to the shareholders of a company out of accumulated profits of the company on the liquidation of the company; (d) any distribution by a company on the reduction of its capital to the extent to which the company possesses accumulated profits which arose after the end of the previous year ending next before the 1st day of April, 1933. whether such accumulated profits have been capitalized or not (e) any payment by a company, not being a company in which the public are substantially interested 'within the meaning of section 23-A, of any sum (whether as representing a part of the assets of the company or otherwise) by way of advance or loan to a shareholder or any payment by any such company on behalf or for the individual benefit of a shareholder, to the extent to which the company in either case possesses accumulated profits; but 'dividend' does not include : (i) a distribution made in accordance with sub-clause (c) or sub-clause (d) in respect of any share issued for full cash consideration where the holder of the share is not entitled in the event of liquidation to participate in the surplus assets (ii) any advance or loan made to a shareholder by a company in the ordinary course of its business where the lending of money is a substantial part of the business of the company; (iii) any dividend paid by a company which is set off by the company against the whole or any part of any sum previously paid by it and treated as a dividend within the meaning of sub-clause (e), to the extent to which it is so set off. Explanation. - The expression "accumulated profits", wherever it occurs in this clause, shall not include capital gains arising before the 1st day of April, 1946, or after the 31st day of March, 1948." 5. Explanation. - The expression "accumulated profits", wherever it occurs in this clause, shall not include capital gains arising before the 1st day of April, 1946, or after the 31st day of March, 1948." 5. The clause was again amended by the Finance Act of 1956 which defined dividend as under : "'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; (b) any distribution by a company of debentures or debenture-stock or deposit certificates in any form. whether with or without interest to the extent to which the company possesses accumulates profits, whether capitalised or not : (c) 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 it liquidation, whether capitalised or not; (d) any distribution by a company on the reduction of its capital to the extent to which the company possesses accumulated profits which arose after the end of the previous year ending next before the Ist day of April. 1933, whether such accumulated profits have been capitalised or not; (e) any payment by a company. 1933, whether such accumulated profits have been capitalised or not; (e) any payment by a company. not being a company in which the public are substantially interested within the meaning of section 23-A, of any sum (whether as representing a part of the assets of the company or otherwise) by way of advance or loan to a shareholder or any payment by any such company on behalf or for the individual benefit of a shareholder, to the extent to which the company in either case possesses accumulated profits : but 'dividend' does not include : (i) a distribution made in accordance with sub-cause (c) or sub-clause (d) in respect of any share issued for full cash consideration where the holder of the share is not entitled in the event of liquidation to participate in the surplus assets; (ii) any advance or loan made to a shareholder by a company in the ordinary course of its business where the lending of money is a substantial part of the business of the company (iii) any dividend paid by a company which is set off by the company against the whole or any part of any sum previously paid by it and treated as a dividend within the meaning of sub-clause (e), to the extent to which it is so set off. Explanation : The expression "accumulated profits" wherever it occurs in this clause, shall not include capital gains arising before the 1st day of April, 1946 or after the 31st of March, 1948." 6. It would, at this stage, be convenient to note the effect of the decision in Inland Revenue Commissioners v. George Burrell, L.R. (1924) 2 K.B. 52. In that case, the Court of Appeal held that accumulated and current profits distributed by the Liquidator amongst the shareholders on the liquidation of a company were not dividend in the hands of the shareholders. The reasoning adopted for this decision was that a liquidator could not declare or distribute a dividend and that on the liquidation of a company undistributed profits could no longer be distinguished from capital and that the accumulated as well as the current profits became surplus assets in the hands of the liquidator and that therefore what the liquidator would distribute amongst the shareholders would be capital which would merely be their share in the assets of the company. It is obvious that sub-clause (c) of clause (6-A) of section 2 supersedes the effect of the decision in Burrell's case' as it expressly provides that any distribution made to any shareholders on the liquidation of a company out of the company's accumulated, of its would fall within the definition of 'dividend' and would therefore be taxable in the hands of the shareholders. If we look to the clause before its amendment, it would appear that its operation was limited only to the accumulated profits which arose during the six previous years of the company preceding the date of liquidation and after the amendment of the clause, the accumulated profits of any past year were brought within the purview of chargeability. The Indian Legislature thus by enacting section 2(6-A)(c) achieved the effect of assimilating the distribution of accumulated profits by a Liquidator to a similar distribution by a company which was working, subject to the limitation that the profits would be dividend only in so far as they came out of profits accumulated within six years prior to liquidation. This limitation was introduced by the proviso which formed part of section 2(6-A)(c) at the time when the section was first enacted and so long as the proviso stood, the distribution. could be regarded as dividend only to the extent to which it was a distribution of accumulated profits of six years prior to liquidation. This limitation was lifted by deleting the proviso by the Finance Act of 1955, with the result that from and after the assessment year 1955-56, the distribution of accumulated profits by a Liquidator could be equated with a similar distribution by a company which was in actual working, irrespective as to when the profits were accumulated. In other words, the fiction that was created was that if any accumulated profits were distributed to the shareholders as part of a distribution by a liquidator in respect of the assessment year 1955-56 or any subsequent assessment year, such accumulated profits were liable to be treated as dividend and taxed in the hands of the shareholders. If section 2(6-A)(c) was not enacted, the accumulated profits when they reached the hands of the shareholders on distribution by a Liquidator, would not have been taxable, but after the enactment of section 2(6-A)(c), this position could not obviously obtain. If section 2(6-A)(c) was not enacted, the accumulated profits when they reached the hands of the shareholders on distribution by a Liquidator, would not have been taxable, but after the enactment of section 2(6-A)(c), this position could not obviously obtain. After the enactment of section 2(6-A)(c), the accumulated profits of sic years prior to liquidation became taxable when they were distributed to the shareholders in liquidation, but by reason of the proviso, the accumulated profits of earlier years would remain untaxable, although they would be received by the shareholders as part of distribution in liquidation. This proviso, as stated earlier, was deleted and after this was done, whatever accumulated profits were released to the shareholders in liquidation, would be taxable by virtue of the fiction and would be liable to be treated as dividend. 7. On the liquidation of a company, the assets of the company may consist of different funds such as accumulated profits, capital, capital gains, etc., and all these funds would become part of the assets of the company held by the liquidator and liable to be distributed amongst the shareholders. In the hands of the Liquidator, there would be no distinction between one fund and the other as the assets would be held by the Liquidator as the property of the company and therefore, when a distribution is made out of this property, such distribution may consist of one or more of these funds. Sometimes it may be difficult to ear-mark the particular fund out of all component funds of which the assets were constituted, from which the distribution was made. Whether a distribution is made out of accumulated profits or out of any other fund, is a physical fact and hence to be ascertained on the facts of each particular case. The fiction created by section 2(6-A)(c) makes the fund of accumulated profits liable to tax inspite of the fact that such accumulated profits have merged into the property and assets of the company on liquidation. By virtue of such a fiction, an item forming one of the assets of the company, which could otherwise not be subjected to tax, was brought within the net and was made liable to tax. By virtue of such a fiction, an item forming one of the assets of the company, which could otherwise not be subjected to tax, was brought within the net and was made liable to tax. But that fiction is restricted by the section to the creation of the liability at any distribution to the extent to which the distribution could be made attributable to the accumulated profits of the company immediately before its liquidation, whether capitalised or not. The section does not prescribe or enact as to how the attributability to the accumulated profits of the company is to be ascertained, nor does it provide for raising any presumption as regards such attributability. The extent to which the fiction has been created by the section under consideration is thus restricted and must be restricted to the terms of, and the phraseology used in the section because the section attempts to saddle liability in respect of an item of the funds of a company in liquidation, which otherwise could not have been brought into tax. The fiction, therefore, cannot be extended beyond what the section provides for. The section thus does not enact a fiction deeming a distribution to have come out of accumulated profits or making a distribution attributable to accumulated profits. The argument, therefore, made on behalf of the Revenue assumes that the section not only creates a fiction of chargeability but also a fiction of attributability which, on a plain reading of the section, cannot be sustained. Similarly, the view contended for on behalf of the assessee that whenever a distribution is made, it must be presumed to have been made first out of accumulated profits and that the distribution made in the year ending 30th September, 1952 must be regarded as having exhausted the accumulated profits of earlier years and that therefore, no distribution made thereafter can be said to be referable to the accumulated profits of earlier years, cannot be accepted. Such a presumption in the case of a distribution by a Liquidator, does not appear to be permissible on a proper construction of the section. 8. The section as it stands leads to and fully warrants the construction of the section referred to above. There is no direct authority on this question which has been cited by the learned advocates appearing on behalf of the parties. 8. The section as it stands leads to and fully warrants the construction of the section referred to above. There is no direct authority on this question which has been cited by the learned advocates appearing on behalf of the parties. Reference however may be made with some advantage, to the following observations of Dixon, J. in Resch v. Federal Commissioner of Taxation, (1941-42) 66 C.L.R. 198 at p. 219: "Among those provisions is section 16-B, the material part of which is as follows: "Where in the course of the winding up of a company a distribution is made by the liquidator to the members or shareholders, the amount distributed shall. to the extent to which it represents income derived by the company (whether prior to or during liquidation) which would have been assessable in the hands of the members or shareholders if distributed to them by a company not in liquidation, be deemed to be assessable income of the members or shareholders dc; lied in the year in which the distribution is made." It will be seen that the purpose of the section was to require the inclusion in the assessable income of a member of a company being wound up of so much of every distribution in the liquidation as upon a proper dissection or apportionment is found attributable to the existence among the assets of profits, whether reserved, accumulated, floating or even earned since liquidation if those profits would, under the provisions of section 16 (b) (i), have formed part of the members' assessable income, had they been distributed by the company as a going concern. The section thus impliedly concedes what was decided by this Court in Stevenson's case', namely that section 16 (b) (i) was confined to distributions of profit by a company as a going concern and did not apply to a distribution in a liquidation; so that under the provisions of that paragraph no part of a distribution in a winding up was taxable in the hands of the members, notwithstanding that it represented or reflected taxable income of the company. But section 16-B destroys this distinction and, if the profits are of a kind which could not be distributed among members or shareholders while the company was a going concern without exposing the members or shareholders to a liability to include them in his assessable income, then in the event of a winding up he must also include them when they are distributed as part of the surplus dividend among shareholders or members or, as they ought technically to be called, contributories. The mode of distribution will be different. In a winding up the liquidator distributes the surplus as a fund without distinguishing according to the source of the components. Profits are therefore not distributed as such; while a going concern must maintain a distinction between profits and share capital and distribute profits under a description or in a guise which so identifies them, e.g.,as dividend or bonus. Section 16-B therefore, does not, and logically could not, say that the distribution in a winding up must, to be taxable, be of the same character as a distribution that would be taxable in the case of a going concern. It is the liability to tax under section 16 (b) (i) not of the distribution, but of the thing distributed, the profit that section 16-B takes as the discremen for the purpose of ascertaining what part of the surplus in a winding up a contributory must include in his assessable income." 9. It was urged by the learned Advocate-General that the above authority relates to a provision in the Australian Income-tax Law in which the relevant section was not a defining section but a charging section; whereas, according to the learned Advocate-General, in the case before us, section 2(6-A)(c) is a defining section and not a charging section. That is true and although these observations were made in relation to the Australian section, the observations quoted above offer some help in the construction and applicability of the Indian section. What are sought to be brought within the ambit of taxation by the Australian section are the accumulated profits when they reach the hands of the shareholders on distribution in liquidation and when they so reach the hands of the shareholders, they are fictionally treated as dividend and taxed as such. 10. What are sought to be brought within the ambit of taxation by the Australian section are the accumulated profits when they reach the hands of the shareholders on distribution in liquidation and when they so reach the hands of the shareholders, they are fictionally treated as dividend and taxed as such. 10. It is true that in the absence of anything to show that any particular fund has been utilised for making a distribution, it may be difficult to dissect the distribution for the purpose of ascertaining the fund out of which the distribution was made. But, in such a case, the Revenue can possibly adopt the method of rateable apportionment which has been referred to in Gunn's Commonwealth Income-tax Law and Practice, 7th Edition, page 567, Article 1329. The notes under Article 1329 indicate how apportionment of capital profits for the purpose of distribution could be made. But in any event, it appears to be certain that the section does not enact a fiction deeming a distribution to have come out of accumulated profits or making a distribution attributable to accumulated profits and, therefore, whether the distribution is out of accumulated profits or not would always remain a matter of fact and not a matter of fiction. 11. If we turn to the facts of the present case, the first distribution made by the Liquidator was of the sum of Rs. 17,25,000 which was made in the year ending 30th September, 1952. At the time of this distribution the proviso existed in section 2(6-A)(c) and the only inquiry therefore that was relevant at the time, was whether the distribution of Rs. 17,25,000 reflected the accumulated profits of the assessee of the six years preceding the date of liquidation, and, if so, to what extent. As the accumulated profits of the six years previous to the liquidation were Rs. 50,500, this amount of Rs. 50,500 out of the total amount of Rs. 17,25,000 was treated by the Revenue as dividend under section 2(6-A)(c). It is obvious that it was not necessary at that time to institute any further inquiry as to whether the remaining part of Rs. 17,25,000 reflected accumulated profits or not. 50,500, this amount of Rs. 50,500 out of the total amount of Rs. 17,25,000 was treated by the Revenue as dividend under section 2(6-A)(c). It is obvious that it was not necessary at that time to institute any further inquiry as to whether the remaining part of Rs. 17,25,000 reflected accumulated profits or not. The proviso continued to exist during the assessment year 1954-55, but when it was deleted, the Revenue could legitimately say that it was entitled to consider in relation to any distribution made from that date, whether such a distribution reflected accumulated profits of earlier years. If any part of the accumulated profits of earlier years was found to have been distributed among the shareholders from the aforesaid date, the Revenue could make it liable to tax as dividend under section 2(6-A)(c),.. Equally so, in regard to the present distribution in controversy, the Revenue was entitled to inquire whether any part of the distribution reflected accumulated profits of earlier years. This the Revenue did not do in the present case, but what it did was that it considered the entire distribution of Rs. 75,000 as dividend on the basis that so long as the accumulated profits were not exhausted by being regarded as dividend, any distribution made after the deletion of the proviso could legitimately be regarded as distribution referable to accumulated profits. The Revenue thus proceeded on the basis, which has been adopted as an argument by it at the hearing, that so long as the proviso existed, the chargeability was restricted to the accumulated profits of six years prior to liquidation and that therefore, when the sum of Rs. 50,500 was brought to tax as dividend, the accumulated profit of six years prior to liquidation were only exhausted and utilised. but the balance of the fund of accumulated profits could always be made available to be utilised in considering the 'attributability to accumulated profits. The Revenue, in support of this argument, depended upon the assumption that accumulated profits existed in the distribution only when they were chargeable. The effect of such an argument, if accepted, would be to extend the fiction created by the section not only to chargeability but to attributability also. Such an argument, as we have already discussed, is not well-founded. The Revenue, in support of this argument, depended upon the assumption that accumulated profits existed in the distribution only when they were chargeable. The effect of such an argument, if accepted, would be to extend the fiction created by the section not only to chargeability but to attributability also. Such an argument, as we have already discussed, is not well-founded. The Tribunal in the present case, did not ascertain whether the fund constituted what were accumulated profits at the date of liquidation was exhausted by the previous distributions and whether the distribution or Rs. 75,000 reflected any part of such fund. The Tribunal did not disintegrate the distribution of Rs. 75,000 for the purpose of finding out whether any part of it came out of accumulated profits of earlier years and thus there is no finding of the Tribunal that when the distribution of Rs. 75,000 was made, accumulated profits of earlier years had not been exhausted by the previous distributions and that they reached the hands of the shareholders as part of this distribution, so that the present distribution could be said to be referable to accumulated profits. In absence of such a finding, the distribution of Rs. 75,000 could not have been regarded as dividend under section 2(6-A)(c). 12. I would, therefore, answer the question in the negative. The assessee must get the costs of the Reference from the Commissioner. (By Majority) Answered against the department.