As per case facts, respondents, who were shareholders of Tinnevely Motor Service Company Private Limited, received dividends from the company's liquidator after its voluntary liquidation. The Income-Tax Officer included a ... portion of these dividends as income, considering profits assessed under Section 41(2) of the Income Tax Act, 1961, as part of the company's accumulated profits. The respondents contested this, arguing that Section 41(2) profits were not 'accumulated profits' in the commercial sense. Their appeal was upheld by the Appellate Assistant Commissioner and the Tribunal, and subsequently by the High Court. The question arose whether the amount assessed as profit under Section 41(2) of the Income Tax Act, 1961, which results from the sale of assets for a price less than their original cost but more than their written down value, constitutes 'accumulated profits' for the purpose of being deemed a dividend under Section 2(22)(c) of the Act. Finally, the Supreme Court ruled that the amount taxed under Section 41(2) of the Act does not represent 'accumulated profits' as defined in Section 2(22). The Court clarified that Section 41(2) creates a legal fiction primarily for recapturing depreciation allowances, treating the excess of sale proceeds over the written down value as income for tax purposes, but this fictional income does not change its fundamental character as a return of capital in a commercial sense. Therefore, such an amount cannot be considered as distributable profit or dividend. The High Court's decision was affirmed.