2.4. [ SEC. 2(22)(c) ] : DISTRIBUTION TO SHAREHOLDERS ON LIQUIDATION
Any distribution to its shareholders by a company on its liquidation , to the extent to which Distribution is attributable to the accumulated profits, whether capitalized or not, immediately before its liquidation.
Computation of Accumulated profits :
The Company which is in Liquidation : Accumulated Profits include all profits of the company upto the date of liquidation.
Where the company is in liquidation due to compulsory acquisition : Accumulated Profits include all profits of he company upto the date of liquidation but it excludes profits of the company prior to the 3 years immediately preceding the PY in which such acquisition took place.
2. Thus the amount distributed by a company on reduction of its share capital has two components – distribution attributable to accumulated profits and distribution attributable to capital.
2.5. [ SEC. 2(22)(d) ] : DISTRIBUTION ON REDUCTION OF CAPITAL
any distribution to its shareholders by a company on the reduction of its capital, to the extent to which the company possesses accumulated pro fits 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;
>> Redemption of Preference Shares at premium shall gave rise to Capital Gain and shall not be treated as Deemed Dividend.