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TMI Blog1976 (11) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... The question referred to this court in T.C. No. 277 of 1972 is : " Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the two sums of Rs. 8,35,800 being proposed dividends and Rs. 14,07,933 being provision for taxation could not be regarded as reserves and, therefore, not includible in the computation of capital under the Second Schedule to the Super Profits Tax Act, 1963 ? " The question referred in T.C. No. 280 of 1972 is : "Whether, on the facts and in the circumstances of the case, it has been rightly held that the provision for taxation amounting to Rs. 7,76,231 and provision for proposed dividends amounting to Rs. 6,22,500 are not reserves within the meaning of the term i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en that the first four references deal with the Super Profits Tax Act, 1963, and the sole question in the first three references and the second question in the fourth reference deal with the same point, though the amounts differ. In the last reference, though there are two questions, they also deal with the same points, viz., provision for proposed dividend and that too with the Companies (Profits) Surtax Act, 1964. All these questions, in our opinion, are covered by the earlier decisions of this court. In Nagammal Mills Ltd. v. Commissioner of Income-tax [1974] 94 ITR 387 (Mad), this court held that the amount set apart as provision for dividend is for payment towards a specific liability and cannot be said to be a reserve for future use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dividend has actually been paid out by the company to its shareholders. Though the same was set apart for a specified purpose, it cannot be said to be available for the future use of the company so as to partake the character of capital. The said sum set apart for payment towards a specific liability cannot be said to be a reserve for future use of the company. This sum has, therefore, to be treated as not a reserve. " However, Mr. Swaminathan contended that the Supreme Court in Kesoram Industries' case [1966] 59 ITR 767, to which we have already adverted, has held that the provision for dividend is not a provision for an enforceable liability, because the payment of dividend becomes a debt only when the company in its general body meeti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1957. The question is whether the amount set apart as dividend by the directors was a debt owed by the company on the valuation date. The directors cannot distribute dividends but they can only recommend to the general body of the company the quantum of dividend to be distributed. Under section 217 of the Indian Companies Act, there shall be attached to every balance-sheet laid before a company in general meeting a report by its board of directors with respect to, inter alia, the amount, if any, which it recommends to be paid by way of dividend. Till the company in its general body meeting accepts the recommendation and declares the dividend, the report of the directors in that regard is only a recommendation which may be withdrawn or mo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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