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TMI Blog1977 (8) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... 3,18,148, provision for taxation of Rs. 44,23,892 and proposed dividend of Rs. 48,24,530 were not reserves for purposes of computation of capital of the assessee-company within the meaning of the Second Schedule to the Super Profits Tax Act, 1963 ?" The facts found by the Tribunal including those which are matters of record may shortly be stated as follows : In the assessment year in question it was claimed by the assessee that forfeited dividend of the amount of Rs. 3,18,143, provision for taxation of the amount of Rs. 44,23,892 and proposed dividend of Rs. 48,24,530 should be treated as reserve within the meaning of the Second Schedule to the Super Profits Tax Act, 1963, for the purpose of computation of capital. The Super Profits Tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " and "provisions for taxation" was covered by an unreported decision of this court in Income-tax Reference No. 262 of 1969, in this case of Braithwaite Co. (India) Ltd. v. Commissioner of Income-tax-Since reported in [1978] 111 ITR 729 (Cal). Mr. Bajoria, however, contended that a contrary view has been taken by the Gujarat High Court in a subsequent decision in the case of Commissioner of Income-tax v. Mafatlal Chandulal Co. Ltd. [1971] 107 ITR 489 (Guj), where it has been held that amounts set apart on account of proposed dividend should be included in computing the capital of a company for the purpose of the Super Profits Tax Act, 1963, and should not be treated as a provision. Mr. Bajoria invited us to follow the later decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est (See Spicer and Pegler's Book-keeping and Accounts, 15th edition, page 42). An amount set aside out of profits and other surplus, not designed to meet a liability, contingency, commitment or diminution in value of assets known to exist at the date of the balance-sheet is a reserve but an amount set aside out of profits and other surpluses to provide for any known liability of which the amount cannot be determined with substantial accuracy is a provision (See William Pickles' Accountancy, second edition, page 192 ; Part III, clause 7, Schedule VI to the Companies Act, 1956, which defines provision and reserve). Mr. Bajoria contended that in the instant case the act of forfeiture did not provide for any liability but on the contrary rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is fund could not be treated as a reserve. The Tribunal also found that this "forfeited money reserve" arose because unclaimed dividends and other amounts were being transferred to this account. The High Court accepted the above findings of fact and held that the unclaimed dividends represented an existing liability of the assessee to its shareholders, as such unclaimed dividend was payable whenever a shareholder puts forward his claim from the "forfeited monies account". Accordingly, it was held that the "forfeited monies account" was a provision and not a reserve. Mr. Sengupta has cited certain passages from authoritative text books on English company law and has contended that a dividend once declared is not meant to be forfeited light ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommissioner of Income-tax v. Tata Sons Private Ltd. [1974] 97 ITR 128, Mr. Sengupta invited this court to follow the decision of the Allahabad High Court in the case of British India Corporation (P.) Ltd. [1973] 92 ITR 38 and hold that the "forfeited dividend fund" was a provision. The Bombay High Court observed as follows : "We must accept the view taken by another High Court on the interpretation of the section of a statute which is an all India statute." We have carefully considered the respective submissions of the parties and it appears to us that the following have been found as facts : (a) The sum of Rs. 3,18,143 had originally been declared as dividend and for some reason had not been claimed by the shareholders or were not pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of British India Corporation (P.) Ltd. [1973] 92 ITR 38 (All) appear to be different from the facts found in the case before us. It was found in that case that the declared dividends which remained unclaimed and other amounts were being transferred to an account named as "forfeited money reserve." There was no finding that such unclaimed dividend had been forfeited. The Allahabad High Court did not consider the factual and legal aspects of forfeiture of dividend. It was accepted as a fact that a shareholder's claim against unclaimed dividend was met from the "forfeited moneys account". In the case before us there is a clear finding that the fund in question consists of forfeited dividend and that this fund has not been set apart for any ..... X X X X Extracts X X X X X X X X Extracts X X X X
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