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TMI Blog2000 (7) TMI 59X X X X Extracts X X X X X X X X Extracts X X X X ..... he case, the Tribunal was justified in including the dividends of Rs. 7,37,028 and Rs. 27,27,790 declared by the assessee-company in respect of the assessment years 1973-74 and 1974-75, respectively, in the capital base on the first day in respect of the respective accounting periods relevant to the assessment years 1973-74 and 1974-75 for the purpose of computing the chargeable profits under the Companies (Profits) Surtax Act, 1964 ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in confirming the direction given by the Appellate Assistant Commissioner to the Income-tax Officer that the capital of the assessee-company was not to be reduced by an amount of Rs. 19,04,304 representing capital for r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e general reserve for the purpose of determining the capital of the company under the Surtax Act. It was, inter alia, observed that in such a case, the liability arises prospectively and, therefore, there is no question of any relating back to the first day of the accounting year. It was held that a subsequent approval can relate back to an act which was performed earlier; and if there was no act performed earlier, there is no question of subsequent approval relating back to the same. So far as relief under section 80J of the Act is concerned, reliance was placed on a decision of the Karnataka High Court in Stumpp, Schuele and Somappa Pvt. Ltd. v. Second ITO [1976] 102 ITR 320 and Second ITO v. Stumpp, Schuele and Somappa Pvt. Ltd. [1977] 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... commendation for payment of dividend by the general body of the shareholders. A conjoint reading of the scheme of the Surtax Act and the Companies Act, 1956 (in short the "Companies Act"), suggests that the appropriation made by the board of directors by recommending payment of dividend, in the nature of things, does not constitute a "reserve". The resolution by the general body of the shareholders to declare dividend out of profits at a particular percentage crystallises into a liability, and subsequent payment relates back to the relevant date, namely, the closing of the accounting year during which the liability had arisen. "Reserve" has to be clearly distinguished from "provision". As per the clarification contained in Part III of Sch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal employed in the business. Provisions are usually shown in the balance-sheet by way of deductions from the assets in respect of which they are made whereas general reserves and reserve funds are shown as part of the proprietor's interest". The distinction made by William Pickles as indicated above was noted by the Supreme Court in Vazir Sultan Tobacco Co. Ltd. v. CIT [1981] 132 ITR 559. It was held that on a plain reading of these terms "provision " was defined positively by specifying what it meant, whereas "reserve" was defined in a negative form and was not exhaustive in the sense that it only specifies certain amounts which are not included in the term "reserve". The court said : "In other words, the effect of reading the two defin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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