9911796707
TMI Blog1998 (4) TMI 171X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee, the AO noticed that the development rebate reserve amounting to Rs. 13.66 lakhs created by the assessee on 31st July, 1976, relevant for the asst. yr. 1977-78 was transferred by the assessee to its P L a/c on 31st July, 1984, that is, before the expiry of a period of eight years. The profits available for appropriation in the year ended 31st July, 1984, after this transfer of the reserve amounted to Rs. 107.28 lakhs, but a sum of Rs. 19.21 lakhs was appropriated by the assessee in its audited P L a/c for this period towards dividend on preferential and equity shares. Dividend amounting to Rs. 98,958 on preference shares had already been paid, while dividend amounting to Rs. 18,22,000 on equity shares was duly proposed by the directo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntial to refer to the provisions of s. 34(3)(a), which are as under: "The deduction referred to in s. 33 shall not be allowed unless an amount equal to seventy-five per cent of the development rebate to be actually allowed is debited to the P L a/c of any previous year in respect of which the deduction is to be allowed under sub-s. (2) of that section or any earlier previous year (being a previous year not earlier than the year in which the ship was acquired or machinery or plant was installed or the ship, machinery or plant was first put to use and credited to a reserve account to be utilised by the assessee during a period of eight years next following for the purpose of the business of the undertaking, other than (i) for distributio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rward 28,57,799?" In the said Directors Report it was also stated in respect of dividend that the directors recommend the declaration of dividend at 20 per cent on equity shares subject to deduction of tax as applicable. The company, no doubt, has made the provisions during the year for the proposed dividend on equity shares amounting to Rs. 18,22,000 and paid during the year a sum of Rs. 98,958 by way of dividend on preference shares. So far as the issue of utilisation of the development rebate reserve for the distribution by way of dividend on preference share is concerned, there is no doubt that the company has distributed the dividend on preference shares and thus there is clear violation of s. 34(3)(a) to the extent of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions in the balance sheet. Failure to make such provision in the accounts amounts to contravention of Schedule VII to the Companies Act r/w s. 211. Dividend can be declared only out of the current profits as envisaged under s. 205 of the Companies Act. Development rebate reserve is not regarded to be a free reserve for the purpose of the declaration of the dividend. The moment such reserve is written back it becomes available for the purpose of declaration of the dividend as per the Companies Act. The assessee-company is following mercantile system of accounting. The recommendation of the dividend and the appropriation of the amount for the proposed dividend, in our opinion, is utilisation of the amount for distribution by way of dividen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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