9911796707
TMI Blog1983 (7) TMI 135X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment years 1975-76 to 1978-79, the relevant dates for which the capital of the company has to be ascertained were 1-1-1974, 1-1-1975, 1-1-1976 and 1-1-1977, respectively. Out of the profits for the year ended 31-12-1973, the directors of the company had recommended a dividend subject to deduction of tax, which dividend, if approved by the shareholders at the annual general meeting, would be paid out of the general reserve and no separate provision was made therefor under the head 'Proposed dividend'. The amount of such proposed dividend was Rs. 30 lakhs. The general body meeting of the assessee-company met in the month of June 1974 and approved the payment of the aforesaid dividend. Before, however, the aforesaid dividend could be paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee has filed the present appeals before the Tribunal objecting to the decision of the Commissioner (Appeals) in this respect. It is submitted on behalf of the assessee that though the assessee had declared at the annual general meeting held in June 1974 a dividend of Rs. 30 lakhs, the said amount could not be deducted from the general reserve of the assessee-company as prior to the actual payment of the dividend, the Parliament had enacted the Companies (Temporary Restrictions on Dividends) Act. It was submitted that, under section 5 of the said enactment declaration or payment of dividend in excess of its distributable profits was void. The assessee not having paid the amount before the appointed day under the enactment, viz., 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Companies (Temporary Restrictions on Dividends) Act, the appointed date was 6-7-1974. In the case of the assessee, the distributable profit was an amount equal to 12 per cent on the face value of the equity shares of the company, which meant an amount of Rs. 48,000 only. Section 5 reads as under : "Dividend in excess of distributable profits to be void and to be recovered.---For a period of two years from the appointed day, any dividend declared or paid after the appointed day by a company to which this Act applies, in excess of its distributable profits for a financial year shall, to the extent of such excess, be void, and any amount paid by the company to any shareholder in excess of its distributable profits for that year shall be r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 5 of the Companies (Temporary Restrictions on Dividends) Act, 1974 and that the shareholders did not acquire any right to this excess on the expiry of the period of currency of the said Act. The matter has been re-examined. The department is advised that the dividend declared in excess referred to above, can be paid after 6th July, 1976, subject to other provisions of the Companies Act, 1956." 6. We have carefully considered the facts and circumstances of the case and the submissions on either side. The assessee had in its annual general meeting held in June 1974 declared dividend of Rs. 30 lakhs to paid out of the general reserves to its shareholders. Actually, it could pay only Rs. 48,000 being 12 per cent of its equity share capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uired the nature of a provision against an existing liability. In this connection, the guidelines laid down by the Supreme Court in the case of Vazir Sultan Tobacco Co. Ltd. make the position patently clear that the balance in the general reserve to the extent of this liability for dividend was provided for by marking out a portion out of the general reserve for the aforesaid purpose. 7. As to the argument on behalf of the assessee on the basis of the Department of Company Affairs' Communication dated 7-2-1976 to the effect that declaration of dividend even prior to the appointed day was void, does not appeal to us. To our mind the correct legal position has properly been explained by the Department of Company Affairs in their communicati ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
