| Headnote |
Companies (Profit) Sur Tax Act, 1964 Sections-2 (b), 4, 18--Payment of dividend-Recommendation of Board of Directors-Whether reserve-- Whether to be taken into consideration for computation of capital. This appeal arises out of proceedings initiated to compute the capital of the appellant-company for the purpose of Sur tax. The previous year relevant to the assessment year of the paid up capital, the reserve, the debentures etc. under Rule 1 of Second Schedule to the Surtax Act is the calendar year 1963. The assessment year is 1964-65. The position of the capital was to be considered as on the 1st day of January, 1963. In this connection it may be mentioned that the Directors of the appellant-assessee's company at their meeting held on 1.5.1963 approved the transfer of a sum Rs. 90,00,000 out of the profits for the 1962 year to a 'Dividend Reserve Account', 121 / 2 % which amounted to Rs. 76,00,000 on the ordinary shares on the amount paid on those shares prior to 31.12.1962. On 31.5.1963 in the general meeting the accounts were passed by the share-holders and the dividend as recommended by the Directors was declared. Subsequently, the dividend was paid and it was adjusted by transferring Rs. 76,00,000 from the dividend reserve account through the Profit and Loss Appropriation Account. The question therefore arose whether a sum. of Rs. 90,00,000 or any part thereof would be reserve for computing the capital as on January 1, 1963. The appellant claimed in its assessment a sum of Rs. 90,00,000 transferred to the dividend reserve as a reserve entering into capital computation. The assessing authority excluded this sum from the computation of the capital but on appeal the Appellate Assistant Commissioner found it to be a reserve created out of amounts which had not been allowed as deduction for computing the profits of that year. He therefore held that Rs. 90,00,000 was the reserve fund qualified for inclusion under Rule I (III) of the Second Schedule to the Sur-tax Act. On appeal by the Revenue, the Income-tax Appellate Tribunal held that "the assessee had appropriated Rs. 76,00,000 out of the Year's profit and transferred the balance of Rs. 14,00,000 to the dividend reserve" : Rs. 76,00,000 was taken as liability as on 1.1.1963 and as the creation of Rs. 90,00,000 was -ยท 22 INDIAN TUBE CO. v. C.l.T. 23 to be taken as reserve on 1.1.1963, only a sum of Rs. 14,00,000 has been transferred to the reserve account. Accordingly the Tribunal held that a sum of Rs. 14,00,000 would only be treated as a reserve and directed modification of the capital computation. On a reference under section 256(1) of the Income-tax Act and Section 18 of the companies (Profits) Sur-tax Act, 1964 at the behest of the appellant, the High Court answered the question in the negative and against the assessee. Hence this appeal by certificate under Section 261 of the Income-Tax Act, 1961. |
