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TMI Blog1976 (7) TMI 26X X X X Extracts X X X X X X X X Extracts X X X X ..... n reserve of Rs. 8,60,000 was includible in the computation of capital for surtax purposes as a reserve as on November 1, 1964 ? " The above two questions relate to the assessment year 1966-67. The relevant crucial date for computation of capital is the first day of the previous year, i.e., as on November 1, 1964. The position of reserve as disclosed by the balance-sheet for the period ended October 31, 1964, shows thus: Under the heading "Dividend Equalisation Reserve" in the main heading "Reserves and Surplus" as on November 1, 1963, a sum of Rs. 3,40,000 was standing to the credit of dividend reserve. Out of the profits for the period ended October 31, 1964, a sum of Rs. 5,20,000 was appropriated towards dividend reserve account. Thus, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00) in the dividend equalisation reserve would constitute a reserve as on the first day of the previous year and would be includible in the computation of capital of the assessee-company for surtax purposes. The two questions referred to above arise out of this order of the Tribunal. Mr. Joshi, on behalf of the revenue, submitted that the view taken by the Appellate Assistant Commissioner and the Tribunal is right and their finding that the sum of Rs. 8 lakhs, which was to be utilised for dividend in respect of the year ended October 31, 1964, should not be included in the computation of capital ought to be confirmed. He submitted that only the balance of Rs. 60,000 which was surplus in the dividend equalisation reserve after payment of d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ners Co. Ltd. [1977] 108 ITR 987 (Bom). We are, therefore, to consider the question as regards the balance amount of Rs. 3,40,000 (Rs. 8,60,000-Rs. 5,20,000 = Rs. 3,40,000), whether the sum (Rs. 3,40,000) or any part thereof is to be treated as capital employed in the business on the crucial date, i.e., November 1, 1964. Mr. Joshi emphasised the fact that part of this sum is to be utilised for payment of current dividend in respect of the profits for the year ended October 31, 1964. So if that part of Rs. 3,40,000 is to be so utilised, the same ought not to be treated for the computation of capital. Whether it should be done or not will depend upon the provisions in the company law as regards the liability in respect of the dividend. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of dividend the liability will only arise as and when it is approved by the shareholders in their annual general body meeting and it will become payable only when the shareholders decide the particular date when it should be payable. Such liability does not revert to the crucial date, viz., November 1, 1964, in the present case. As for the purpose of surtax what is required is capital employed in the business as on the crucial date, i.e., November 1, 1964. In the present case we have to consider whether the whole of the sum of Rs. 3,40,000 answers the character of the word "capital" as occurring in rule 1 of the Second Schedule to the Companies (Profits) Surtax Act, 1964. There can be no doubt that the sum of Rs. 3,40,000 was in fact a pa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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