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TMI Blog1978 (4) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... 0, being proposed dividends, and Rs. 4,664, being the surplus in the profit and loss appropriation account, could not be considered as ' reserve ' and, therefore, not includible in the computation of the capital of the company for the assessment year 1963-64, under the Second Schedule to the Super Profits Tax Act, 1963 ?" Assessment year 1964-65 : " Whether, on the facts and in the circumstances of the case, it has been rightly held in law that the sum of Rs. 2,65,000, being proposed dividends, could not be considered as ' reserve ' and, therefore, not includible in the computation of the capital of the company for the assessment year 1964-65, under the Second Schedule to the Companies (Profits) Surtax Act, 1964 ? " Assessment year 1965-66 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cribed under the Companies Act of 1956. Further, according to him, the) Second Schedule to the Surtax Act has set out that any item which fell under the head " Current Liabilities and Provisions " should not be treated as " reserve " for the purpose of capital computation. On appeal by the assessee-company, the AAC confirmed the exclusion of these sums from the capital base, Thereupon, this matter came up before the Tribunal before which it was contended that these sums were only " reserve " and also had been termed as " reserve " in the account, that the dividends were only at the proposal stage and no liability existed for the company as on the date of making these provisions and that the liability arose only on or after the approval of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect of the legal question in the judgment dated November 9, 1977, and hence we feel that it is not necessary for us to launch on discussion referring to the various rules, Acts and judicial pronouncements touching this question. Suffice to say that the opinion expressed by the Bench in the above decision would squarely apply to the facts of the present case. As we have already indicated, one point is common in all these questions. As regards the assessment year 1963-64, there are two more points, viz., relating to the provision for taxation and the 'surplus in the profit and loss appropriation account, the amount under the first heading being Rs. 6,25,000 and the one under the second heading being Rs. 4,664, As pointed out by the Bench i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an accrued liability, as there was no accrued liability as on the relevant date, namely, first day of the year of account. It has been so held by the Supreme Court in Kesoram Industries and Cotton Mills Ltd. v. CWT [1966] 59 ITR 767. So, in all these cases, we think, where a proposal has been made by the directors and by virtue of this proposal, reserve has been made for a possible liability towards dividend, that provision or reserve could not cease to be a reserve on the ground that it is reserve for the purpose of payment of an accrued liability as on that date. On the facts of the case before us, it has not been contended that the shareholders had approved the proposal as on that date. There is, therefore, no liability to pay that amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the company for the respective assessment years.
In the result, we answer the three questions as follows : The first question is answered in the affirmative and in favour of the revenue, so far as the provision for taxation and the surplus in the profit and loss appropriation account is concerned, and it is answered in the negative, and in favour of the assessee, so far as the provision for the proposed dividend is concerned. The second and third questions are answered in the negative and in favour of the assessee. In the circumstances, we award no costs.
A copy of this judgment under the signature of the Registrar and the seal of this court will be sent to the Income-tax Appellate Tribunal.
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