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dividend

21 February 2018

IN the definition of dividend i.e sec 2(22)

what is meant by the phrase CAPITALIZED 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 its liquidation, whether capitalised or not ;

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3 Replies

Balaji Ramalingam (Student - CA Final) (285 Points)
Replied 22 February 2018

I think, the phrase capitalisation talks about capitalisation of such distribution in the books of receiver ie. shareholders. Normally if cash is distributed on liquidation shareholders will recognize it as income which will be deemed to be dividend as per section 2(22). But if an asset is distributed the receiver can capitalise it in his books and avoid tax and, such distribution is not a transfer as per Section 46(1) thereby Capital gain also will not arise. So as to curb such practice, that phrase might have been included, so that even if any asset received which is capitalized in the books of receiver will also be deemed to be dividend and tax can be levied.