1993 (12) TMI 8 - HC - Income Tax

Summary

Issues:
1. Interpretation of statutory deductions under the Companies (Profits) Surtax Act, 1964 for assessment years 1975-76 and 1976-77.
2. Treatment of deductions under sections 80G and 80M of the Income-tax Act, 1961 for computing capital employed.
3. Exclusion of unclaimed dividends while computing capital employed for the assessment year 1976-77.

Analysis:
1. The court addressed the questions of law related to the computation of capital employed for statutory deduction under the Companies (Profits) Surtax Act, 1964 for the assessment years 1975-76 and 1976-77. The court referred to previous decisions and answered the questions in favor of the assessee based on established case law.

2. The court deliberated on the treatment of deductions allowed under sections 80G and 80M of the Income-tax Act, 1961 for computing capital employed. The court relied on precedents and held that such deductions could not be considered as sums not "includible" in the total income for income-tax assessment, thus not falling for deduction under the Companies (Profits) Surtax Act, 1964.

3. The issue of excluding unclaimed dividends while computing capital employed for the assessment year 1976-77 was contested. The court analyzed the distinction between "provision" and "reserves" as per relevant statutes. Referring to the Supreme Court decision in Vazir Sultan Tobacco Co. Ltd. v. CIT, the court emphasized the necessity of clear earmarking or separation of funds to constitute a reserve. The court concluded that unclaimed dividends, being a known liability, should not have been included in general reserves for computing capital employed.

The court highlighted the importance of express indication by directors regarding the utilization of funds and emphasized that dividends are typically paid from current income unless specified otherwise. The judgment affirmed the exclusion of unclaimed dividends from general reserves for computing capital employed, ruling in favor of the Revenue. The court dismissed the Tribunal's decision to include unclaimed dividends in general reserves, emphasizing the need for explicit authorization for such inclusion.