1994 (12) TMI 25 - HC - Income Tax

Amalgamating Company, Chargeable Profits, Company Surtax, Computation Of Capital, General Reserve, Previous Year

Summary

Issues:
1. Whether dividend from general reserve affects capital base for Companies Surtax Act.
2. Treatment of provision for taxation in excess of liability as 'reserve'.
3. Applicability of rule 4 of Second Schedule to Companies Surtax Act regarding deductions under Income-tax Act.
4. Exclusion of gross amount of dividends while computing chargeable profits under First Schedule to Companies Surtax Act.
5. Inclusion of amount from 'share premium account' in computing capital under Second Schedule to Companies Surtax Act.

Analysis:

Issue 1: The court relied on Indian Tube Co. P. Ltd. v. CIT [1992] 194 ITR 102 and held that dividend declared after the first day of the previous year does not reduce or affect the capital base for Companies Surtax Act, ruling in favor of the Revenue.

Issue 2: Referring to Vazir Sultan Tobacco Co. Ltd. v. CIT [1981] 132 ITR 559, the court determined that provision for taxation in excess of liability is to be treated as a 'reserve' for computing capital, favoring the assessee.

Issue 3: Citing Second ITO v. Stumpp, Schuele and Somappa P. Ltd. [1991] 187 ITR 108, the court held that rule 4 of Second Schedule is not applicable to deductions under Chapter VI-A of Income-tax Act, ruling in favor of the assessee.

Issue 4: Following CIT v. Voltas Ltd. [1994] 205 ITR 569, the court decided that gross amount of dividends, not net income, must be excluded while computing chargeable profits under Companies Surtax Act, favoring the Revenue.

Issue 5: The court analyzed the inclusion of an amount from the 'share premium account' in computing capital. The court found that the amount represented excess value of net assets, not premium received, and should be treated as part of capital reserve, ruling in favor of the assessee. The court emphasized that the true nature of the amount, not its nomenclature, is determinative, and justified the inclusion in computing capital for Companies Surtax Act.

In conclusion, the court answered issue 5 in favor of the assessee, allowing the inclusion of the amount from the 'share premium account' in computing capital under the Companies Surtax Act.