All capitalisations are not distribution
In almost all practical cases, almost all of us get confused with corporate instuments and tax instruments. This confusion is widely spread regarding component of capital in taxation and in corporate laws. This misguides us for characterization of distribution.
According to Sec. 53, all the payments received from beneficiary in any form into an entity is 'Capital contribution'. Therefore, capital contribution includes at least, paid up equity capital, adjusting calls in arrears; pre-call up contribution; preference capital; security premium, premium on further issue or primary issue, etc.
Intra-group transaction is a serious transaction for corporate purpose. However, intra-group transaction is NOT a transaction for tax purpose. For example, transfering application money to allotment meney to paid up capital is a serious compliance for corporate law and corporate accounting, but nothing for tax accounting. Similarly, capitalisation of security premium issuing bonus shares is a serious compliance for corporate law and corporate accounting, but there is no taxation accounting for this transaction too.
In the otherhand, profit for the tax accounting has wider coverage as it includes, at least; accumulated profit, statutory reserves, funds, reserves, earmarked reserves, locked reserves, restricted reserves, surplus, provisions(except limited banking and general insurance provisions), etc.
Intra-group transaction within profit has no tax impact, because taxation characterize above all items as single head of 'profit'. Therefore, in case provisions transfered into accumulated reserves, there is no tax impact. Liquidating any of the fund has no tax impacts.
Transfering 'Profit' to 'Capital contribution' is 'capitalisation of profit' for the purpose of Section 53, and hence, it is distribution.