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TMI Blog1976 (7) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... ludible in the computation of capital of the assessee-company as on July 1, 1964, was in the amount of Rs. 5,90,000 or in the amount of Rs. 3,60,000 ? " The questions referred to above relate to the assessment year 1966-67, and what is the capital employed in the business of the assessee-company as on the 1st day of July, 1964, is relevant for the purpose of determining the statutory deductions. The balance-sheet of the company for the year ending June 30, 1964, showed an item of dividend reserve under the head " Reserves and Surplus ". The relevant part of the balance-sheet is as under : Rs. Rs. Reserves and Surplus Dividend reserve : as per last account ... 3,45,000 Less transferred to profit loss account for dividend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness for the purposes of calculating the standard deduction under the Surtax Act. That contention of the assessee was rejected by the Income-tax Officer on the ground that this was in the nature of a liability for paying the dividends declared by the company. In an appeal preferred by the assessee before the Appellate Assistant Commissioner it was contended on behalf of the assessee that the entire dividend reserve amount of Rs. 5,90,000 as on July 1, 1964, was a reserve includible in the computation of capital for the surtax assessment year 1966-67. In the alternative, it was contended that in any case the balance of Rs. 3,60,000 in the dividend reserve account, after excluding the sum of Rs. 2,30,000 recommended by the directors for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... July 1, 1964, the balance-sheet clearly showed the said sum of Rs. 3,60,000 as constituting part of the dividend reserve, the amounts in question having been duly transferred from profits to reserve in the earlier years by the authorities of the company competent to do so. The Tribunal further held that the same, however, could not be said in regard to the sum of Rs. 2,30,000 paid out as dividend for the year ended June 30, 1964, and the said sum was treated by the directors themselves as a provision for payment of dividends and not as a reserve. Accordingly, the Tribunal took the view that the sum of Rs. 2,30,000 earmarked for payment of dividends was not a reserve as on July 1, 1964, but the balance amount of Rs. 3,60,000 in the dividend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idend reserve account a sum of Rs. 2,30,000 which was for proposed dividends should be deducted and the balance of Rs. 3,60,000 should alone be regarded as properly included for computation of capital for the purposes of surtax. Mr. Munim on behalf of the assessee, on the other hand, submitted that as a sum of Rs. 1,55,000 was already standing to the credit of the dividend reserve account only a sum of Rs. 75,000 should be treated as being available from the current profits for payment of the sum of Rs. 2,30,000 as proposed dividend and, therefore, a sum of Rs. 5,15,000 should be regarded as includible in computation of capital for the purpose of surtax. He submitted that even though the dividend reserve account balance of Rs. 1,55,000 was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts or income for the year ending June 30, 1964, a sum of Rs. 4,35,000 was directed to be appropriated towards the dividend reserve account. Thus, the whole of the sum of Rs. 2,30,000 could come out of the said amount and the balance will be credited to the dividend reserve account so as to be added to the amount of Rs. 1,55,000 already standing to the credit of the dividend reserve account. From the commercial point of view if any amount is required for incurring any expenditure or making any disbursements in a current year, then ordinarily the same will come out of the income of the company if it is available and only if it is insufficient then the past savings will be resorted to for the purpose of incurring the expenditure or making disb ..... X X X X Extracts X X X X X X X X Extracts X X X X
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