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Issues:
1. Deduction under section 80J of the Income-tax Act based on proposed dividend as a liability. 2. Whether the proposed dividend amount constituted a debt owed by the assessee. 3. Application of legal precedents regarding the treatment of proposed dividends as debts owed. 4. Impact of the timing of approval by the Annual General Meeting on the classification of proposed dividends as debts owed. Analysis: 1. The appeal before the Appellate Tribunal ITAT Chandigarh concerned the deduction claimed by the assessee under section 80J of the Income-tax Act for the assessment year 1981-82, specifically focusing on the treatment of a proposed dividend as a liability affecting the computation of capital employed. 2. The Assessing Officer reduced the proposed dividend amount of Rs. 9 lacs from the total capital employed, considering it as a debt owed by the assessee. The learned CIT (Appeals) upheld this decision, citing the Kerala High Court decision in Catalysts & Chemicals India (West Asia) Ltd. v. CIT [1987] 166 ITR 769, which held that certain dues could be considered as debts owed and deducted from the capital employed for section 80J purposes. 3. During the hearing, the assessee's representative argued that the proposed dividend did not constitute a debt owed as of the first day of the accounting year, relying on legal commentary and distinguishing the case of Catalysts & Chemicals India (West Asia) Ltd. The Departmental Representative, however, supported the lower authorities' decisions. 4. The Tribunal analyzed legal precedents, including the Supreme Court decisions in Kesoram Industries & Cotton Mills Ltd. v. CWT [1966] 59 ITR 767 and Vazir Sultan Tobacco Co. Ltd. v. CIT [1981] 132 ITR 559, which emphasized that a mere recommendation by directors regarding dividends did not create an obligation or debt until approved by shareholders at the Annual General Meeting. 5. Applying these principles to the case at hand, the Tribunal concluded that as of the first day of the computation period, there was no debt owed by the assessee for the proposed dividend, as the Annual General Meeting approval postdated this period. Therefore, the proposed dividend amount of Rs. 9 lacs was not to be reduced from the total assets for computing capital employed under section 80J. 6. Additionally, the Tribunal considered the impact of subsequent Annual General Meeting approval on the classification of proposed dividends as debts owed, citing the Bombay High Court's decision in CIT v. Burmah Shell Refineries Ltd. [1990] 186 ITR 138 and Asbestos Cement Ltd. v. CIT [1995] 211 ITR 290 to support the conclusion that such approval did not relate back to an earlier date for determining liabilities. 7. Consequently, the Tribunal allowed the appeal, directing the Assessing Officer not to reduce the proposed dividend amount from the capital employed for section 80J purposes, as there was no debt owed as of the relevant computation period's commencement.
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