9911796707
TMI Blog1981 (9) TMI 105X X X X Extracts X X X X X X X X Extracts X X X X ..... (Profits) Surtax Act, 1964), for inclusion in the capital computation of the company for the purpose of levying super profits tax ? The first three matters Concerning Vazir Sultan Tobacco Co. Ltd., Hyderabad, Ballarpur Industries, Ltd. and M/s. Bengal Paper Mills Co. Ltd., Calcutta, arise under the Super Profits Tax Act, 1963, while the tax reference cases concerning M/s. Echjay Industries Pvt. Ltd. and Hyco Products Pvt. Ltd., Bombay, arise under the Companies (Profits) Surtax Act, 1964. Since Civil Appeal No. 860 of 1973 (Vazir Sultan Tobacco Company's case) is comprehensive and comprises all the three items of appropriation it will be sufficient if the facts in this case are set out in detail so as to understand how the questions for determination arise in these matters. Vazir Sultan Tobacco Co. Ltd. was an assessee under the Super Profits Tax Act, 1963. For the assessment year 1963-64, for which the relevant accounting period was the year which ended on 30th September, 1962, for computing the chargeable profits of that year for the purpose of levy of super profits tax under the Act, the assessee-company claimed that the appropriations of, (a) Rs. 33,68,360 for taxation, ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payable on the chargeable profits for the relevant accounting year. It is this view of the High Court that is being challenged by the assessee-company in the Civil Appeal No. 860 of 1973 before us. In Civil Appeal No. 1614 of 1978 (Ballarpur Industries Ltd.) and Review Petition No. 57 of 1980 (Bengal Paper Mills Co. Ltd.) we are concerned with only two items of appropriation being, (a) provision for taxation, and (b) provision for proposed dividend and in each one of these cases the Calcutta High Court has taken the view that these two items do not constitute it reserves " and as such have to be ignored while computing the capital of the assessee-company. In Tax Reference Cases Nos. 2 and 3 of 1977 (Echjay Industries Pvt. Ltd.)-a case under the C. (P.) S.T. Act, 1964, we are concerned with two items of appropriation being, (a) provision of taxation, (b) provision for proposed dividend for the two assessment years 1969-70 and 1970-71 and in each of the years the taxing authorities as also the Income-tax Appellate Tribunal, Bombay, have taken the view that these appropriations did not constitute "other reserves" within the meaning of r. 1 of the Second Schedule to the C. (P.) S. T. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of an assessee computed under the I.T. Act, 1961, for any previous year and adjusted in accordance with the provisions of the First Schedule, while s. 2(9) defines the expression " standard deduction " to mean an amount equal to six per cent. of the capital of the company as computed in accordance with the provisions of the Second Schedule, or an amount of Rs. 50,000, whichever is greater. In order to determine "standard deduction " it becomes necessary to compute the capital of the company in accordance with the rules laid down in the Second Schedule and r. 1 is relevant for our purposes, the material portion whereof runs as follows: "1. Subject to the other provisions contained in this Schedule, the capital of a company shall be the sum of the amounts, as on the first day of the previous year relevant to the assessment year, of its paid up share capital and of its reserve, if any, created under the proviso (b) to clause (vib) of sub-section (2) of section 10 of the Indian Income-tax Act, 1922, or under sub-section (3) of section 34 of the Income-tax Act, 1961, and of its other reserves in so far as the amounts credited to such other reserves have not been allowed in computing i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gotten that it occurs in a taxing statute which is applicable to companies only and to no other assessable entities and as such the expression will have to be understood in its ordinary popular sense, that is to say, the sense or meaning that is attributed to it by men of business, trade and commerce and by persons interested in or dealing with companies. Therefore, the meanings attached to these two words in the provisions of the Companies Act, 1956, dealing with preparation of balance-sheet and profit and loss account would govern their construction for the purposes of the two taxing enactments. We might mention here that in CIT v. Century Spinning and Manufacturing Co. Ltd. [1953] 24 ITR 499 (SC) this court after referring to the dictionary meaning of the expression " reserve " observed: " what is the true nature and character of the disputed sum (sum allegedly set apart), must be determined with reference to the substance of the matter " and went on to determine the true nature and character of the disputed sum by relying upon the provisions of the Indian Companies Act, 1913, the form and the contents of the balance-sheet required to be drawn up and regln. 99 in Table A of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubject as aforesaid, comply with the requirements of Pt. II of Sch. VI, so far as they are applicable thereto. In other words the preparation of balance-sheet as well as profit and loss account in the prescribed forms and laying the same before the shareholders at the annual general meeting are statutory requirements which the company has to observe. The form of balance-sheet as given in Pt. I of Sch. VI contains separate heads of " Reserves and Surpluses " and "Current Liabilities and Provisions" and under the sub-head " Reserves " different kinds of reserves are indicated and under sub-head " Provisions " different types of provisions are indicated : Part III is the interpretation clause setting out the definitions of various expressions occurring in Pts I and II and the expressions " reserve " provision " and " liability " have been defined in cl. 7 thereof. Material portion of cl. 7 of Pt. III runs as under: " (1) For the purposes of Parts I and II of this Schedule, unless the context otherwise requires (a) the expression `provision' shall, subject to sub-clause (2) of this clause, mean any amount written off or retained by way of providing for depreciation, renewals or di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is not necessarily a reserve. We are emphasising this aspect of the matter because during the hearing almost all counsel for the assessees strenuously contended before us that once it was shown or became clear that the retention or appropriation of a sum out of profits and surpluses was for an unknown liability or for a liability which did not exist on the relevant date it must be regarded as a reserve. The fallacy underlying the contention becomes apparent if the negative and non-exhaustive aspects of the definition of reserve are borne in mind. Having regard to the type of definitions of the two concepts which are to be found in cl. 7 of Pt. III the proper approach in our view would be first to ascertain whether the particular retention or appropriation of a sum falls within the expression " provision " and if it does then clearly the concerned sum will have to be excluded from the computation of capital, but in case the retention or appropriation of the sum is not a provision as defined, the question will have to be decided by reference to the true nature and character of the sum so retained or appropriated having regard to several factors as mentioned above and if the concern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd cannot be regarded as a reserve. Similar would be the position in regard to the appropriations for taxation made by the other assessee-companies mentioned earlier. In this context a reference to this court's decision in the case of Kesoram Industries and Cotton Mills Ltd. v. CWT [1966] 59 ITR 767, would be useful. In that case the question was whether a certain amount which had been set apart as provision for payment of income-tax and super-tax was a " debt owed " within the meaning of s. 2(m) of the W.T. Act, 1957, as on March 31, 1957, which was the valuation date and as such was deductible in computing the net wealth of the appellant-company. In its balance-sheet for the year ending March 31, 1957, the appellant-company had shown a certain amount as provision for payment of income-tax and super-tax in respect of that year of account and this court took the view that the expression " debt owed " within the meaning of s. 2(m) of the W.T. Act, 1957, could be defined as the liability to pay in praesenti or in futuro an ascertainable sum of money and that the liability to pay income-tax was a present liability though the tax became payable after it was quantified in accordanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt and in the absence of any such plea having been raised at any stage of the proceedings it will not be proper for this court to allow the assessee-company to raise such plea, which will need investigation into facts, for the first time in its appeal before this court. The contention is, therefore, rejected. Dealing next with the item of appropriation made for retirement gratuity, which arises only in Civil Appeal No. 860/1973 (Vazir Sultan Tobacco Co.) the question is whether the sum of Rs. 9,08,106 appropriated or set apart by the assessee-company from out of its profits and other surpluses by way of providing for retirement gratuity is a provision or reserve on the relevant date, viz., October 1, 1961 ? Counsel for the assessee-company vehemently urged before us that the appropriation had not been allowed as a deduction in the income-tax assessment proceedings of the company for the relevant assessment year on the ground that it was in the nature of a reserve and the entire sum, minus the actual payments, was added back to the income and profits of the assessee-company and if that be so, in the super profit tax assessment it cannot be treated as provision and excluded from ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of every year of service ; but the company can work out on an actuarial valuation its estimated liability (i. e., discounted present value of the liability under the scheme on a scientific basis) and make a provision for such liability not all at once but spread over a number of years. It is clear that if by adopting such scientific method any appropriation is made such appropriation will constitute a provision representing fairly accurately a known and existing liability for the year in question; if, however, an ad hoc sum is appropriated without resorting to any scientific basis, such appropriation would also be a provision intended to meet a known liability, though a contingent one, for, the expression " liability " occurring in cl. 7(1)(a) of Pt. III of the Sixth Schedule to the Companies Act includes any expenditure contracted for and arising under a contingent liability ; but if the sum so appropriated is shown to be in excess of the sum required to meet the estimated liability (discounted present value on a scientific basis) it is only the excess that will have to be regarded as a reserve under cl. 7(2) of Pt. III to the Sixth Schedule. In the above context we might re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany under the W.T. Act. This court held, in view of the terms of s. 2(m) of that Act, that as the liability to pay gratuity was not in Praesenti but would arise in future on the determination of the service, i.e., on the retirement, death or termination, the estimated liability under the schemes would not be " debt " and, therefore, could not be deducted while computing the net wealth. The House of Lords decision in the case of Southern Rly. of Peru Ltd. [1957] 32 ITR 737 (HL) was distinguished by this court as having no relevance to the question before it on the ground that the House of Lords in that decision was concerned in determining the deductibility of the present value of a liability which may arise in future in the computation of taxable income for the relevant year under the income-tax laws. It will thus appear that this court was of the view that though such a liability is a contingent liability and, therefore, not a " debt " under s. 2(m) of the W.T. Act it would be deductible under the I.T. Act while computing the taxable profits; in other words different considerations would apply to cases arising under the W.T. Act and the I.T. Act. In Metal Box Co.'s case [19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eserve or provision ? ...... In the case of an assessee maintaining his accounts on mercantile system, a liability already accrued, though to be discharged at a future date, would be a proper deduction while working out the profits and gains of his business, regard being had to the accepted principles of commercial practice and accountancy. It is not as if such deduction is permissible only in case of amounts actually expended or paid. Just as receipts, though not actual receipts but accrued due are brought in for income-tax assessment, so also liabilities accrued due would be taken into account while working out the profits and gains of the business." Again at p. 64 of the report this court observed thus : " In the instant case, the question is not whether such estimated liability arising under the gratuity schemes amounts to a debt or not. The question that concerns us is whether while working out the net profits, trader can provide from his gross receipts his liability to pay a certain sum for every additional year of service which he receives from his employees. This, in our view, he can do, if such liability is properly ascertainable and it is possible to arrive at a proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred to gratuity reserve by the assessee-company was either provision or a reserve and if the latter to what extent ? The taxing authority will decide the issue in the light of the above principles after giving an opportunity to the assessee-company to place additional relevant materials before it. Turning to the last item of appropriation by way of provision for proposed dividends, which arises in all these matters (except in Tax Reference Case No. 5/1978 of Hyco Products Pvt. Ltd.) the common question is whether the concerned amounts appropriated or set apart by the assessee-companies from out of the profits and other surpluses by way of making provision for " proposed dividends " constituted a provision or a reserve on the relevant date ? It is true that under s. 217 of the Companies Act, 1956, the directors can merely recommend that a certain sum be paid as dividend but such recommendation does not result in any obligation or liability ; the obligation or liability to pay the dividend arises only when the shareholders at the annual general meeting of the company decide to accept the recommendation and pass a resolution for the declaration of the dividend. It is, therefore, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tention with which and the purpose for which such appropriations had been made. We have already indicated that according to the dictionaries (both Oxford and Webster) the applicable meaning of the word " reserve " is " to keep for future use or enjoyment; to set apart for some purpose or end in view; to keep in store for future as special use; to keep in reserve ". In other words, the word " reserve " as a noun in ordinary parlance would mean " something which is kept for future use or stored up for something or set apart for some purpose ". It cannot be disputed that a reserve may be a general reserve or specific reserve and all that is required is that an amount should be kept apart for some purpose, either general or specific. Even so the question is whether the earmaking of a portion of profits by the board of directors of a company avowedly for the purpose of distributing dividend would fall within the expression " reserve " occurring in r. 1 of the Second Schedule to the S.P.T. Act, 1963 ? For this purpose certain tests indicated in some decisions of this court will have to be considered: The first decision of this court in that behalf is the decision in Century Spinning an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not choose to make it a reserve. Nor did the company in its meeting on 3rd April, 1946, decide that it was a reserve. It remained on the 1st of April as a mass of undistributed profits which were available for distribution and not earmarked, as 'reserve'. On the 1st of January, 1946, the amount was simply brought from the profit and loss account to the next year and nobody with any authority on that date made or declared a reserve. The reserve may be a general reserve or a specific reserve, but there must be a clear indication to show whether it was a reserve either of the one or the other kind. The fact that it constituted a mass of undistributed profits on the 1st January, 1946, cannot automatically make it a reserve. On the 1st April, 1946, which is the commencement of the chargeable accounting period, there was merely a recommendation by the directors that the amount in question should be distributed as dividend. Far from showing that the directors have made the amount in question reserve, it shows that they had decided to earmark it for distribution as dividend. " The decision clearly lays down that the true nature and character of the appropriation must be deter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... located profit or loss is carried forward to the account of the next year, and such unallocated amount gets merged in the account of that year. In the system of accounting in the USA each year's account is self-contained and nothing is carried forward. If after allocating the profits to diverse heads mentioned above any balance remains, it is credited to the 'undivided profits' which become part of the capital fund. If in any year as a result of the allocation there is a loss the accmulated undivided profits of the previous years are drawn upon and if that fund is exhausted the banking company draws upon the surplus. In its very nature the undivided profits are accumulation of amounts of residue on hand at the end of the year of successive periods of accounting and these amounts are by the prevailing accounting practice and the Treasury directions regarded as a part of the capital fund of the banking company. " After quoting with approval the above observations, Mr. Justice Shah in Standard Vacuum Oil Co.'s case [1966] 59 ITR 685 (SC) went on to observe at page 695 of the report as follows: "It is true that the court in that case was dealing with a case of banking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in such balance-sheet; (c) the amount, if any, which it recommends should be paid by way of dividend; ........ Regulation 87 of Table A in the First Schedule runs thus: " 87. (1) The Board may, before recommending any dividend, set aside out of the profits of the company such sums as it thinks proper as reserve or reserves which shall, at the discretion of the Board, be applicable for any purpose to which the profits of the company may be properly applied, including provision for meeting contingencies or for equalising dividends; and pending such application, may, at the like discretion, either be employed in the business of the company or be invested in such investments (other than shares of the company) as the Board may from time to time, think fit. (2) The Board may also carry forward any profits which it may think prudent not to divide, without setting them aside as a reserve." The aforesaid provisions read together clearly show that creating reserves out of the profits is a stage distinct in point of fact and anterior in point of time to the stage of making recommendation for payment of dividend and the scheme of the provisions suggests that appropriation made by the boa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Rs. 86,07,712 as on January 1, 1973, should be taken into account while computing the capital of the assessee-company. But the taxing officer reduced the general reserve by the aforesaid sum of Rs. 3,10,450 and only the balance of Rs. 82,97,262 was added in computing the capital. The AAC as well as the Income-tax Appellate Tribunal, Bombay, confirmed the order of the taxing officer. The Tribunal took the view that though it was not a case of " proposed dividend " since the amount actually paid out as dividend was a smaller sum than the amount transferred from out of profits to the general reserve that amount could not form part of the reserve and, therefore, the general reserve as reduced by Rs. 3,10,450 was properly taken into account for the purpose of computation of the capital as on the relevant date. At the instance of the assessee, the Tribunal has referred the following question of law directly to this court for its opinion under s. 257 of the I.T. Act, 1961, read with s. 18 of the C. (P.) S.T. Act, 1964: " Whether, on the facts and in the circumstances of the case, the Tribunal was justified in excluding a sum of Rs. 3,10,450 representing the dividends declared for the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Smyth (A treatise on the principles and practice of accounting in Australia) three methods of valuing the closing stock have been indicated at pp. 441 and 442 of Vol. II (5th edn.) of the treatise, namely, (a) First-in First-out, (b) Last-in First-out and (c) Average Cost. In regard to these, three methods the authors have stated thus: " (a) First-in First-out The assumption underlying this method is that the oldest stock is used or issued first or that sales are made in the order in which the goods are purchased or produced. If there are several lots of goods at different prices, they are regarded as being exhausted in the order of purchase. On a rising market this would write off the lower-priced lots first, and on falling market the higher-priced lots would go first. (b) Last-in First-out. This method assumes that the items of stock purchased are the first to be issued or, sold and thus the stock remaining is valued at the cost of the earlier purchases. (c) Average Cost. On this basis issues of stock are valued at the weighted average cost of the stock on hand at the beginning and of the purchases, less any issues already made." Counsel for the assessee urged that for de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the question whether while incurring any expenditure or making any disbursement a commercial concern will resort to current income or past savings, the normal rule, in the absence of express indication to the contrary, would be to resort to the current income rather than past savings. In our view, therefore, the Tribunal was right in excluding the sum of Rs. 3,10,450 from the general reserves while computing the capital of the assessee-company for the assessment year 1974-75 in the absence of express indication to the contrary. In the result Civil Appeal No. 1614(NT) of 1978 and Review Petition No. 57 of 1980 are dismissed. Civil Appeal No. 860 of 1973 is partly allowed and the issue whether the appropriation for retirement gratuity is a reserve or not is remanded to the taxing authority and the rest of the appeal is dismissed. In Tax Reference Cases Nos. 2 and 3 of 1977 and No. 5 of 1978 the questions referred to us are answered in favour of the department and against the assessee-companies. Each party will bear its own costs in all the matters. AMARENDRA NATH SEN J.-At the outset I wish to observe that I have been somewhat diffident in hearing these matters. I felt a litt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut the facts of this case at any length in this judgment. The facts have been fully and correctly set out in the judgment of my learned brother Tulzapurkar J. My learned brother in his judgment has also dealt with the various arguments which were advanced from the Bar and has also considered the decisions which were cited. I propose to notice only some of the decisions which, to my mind, are particularly important for a decision of the question whether the provision made in the balance-sheet for payment of dividend to the shareholders recommended by the board of directors constituted a " reserve " and the amount, so set apart, should be taken into account in computing the capital of the company for the purpose of S.P.T. Act, 1963. It may be noted that in the Act itself the expression " reserve " has not been defined. In the case of CIT v. Century Spinning and Manufacturing Co. Ltd. [1953] 24 ITR 499, this court had the occasion to consider the meaning of the word " reserve " while dealing with a case under the Business Profits Tax Act (XXI of 1947). In this Act also, there were similar provisions with regard to the computation of the capital of the company and the assessee had cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the profits lying unutilised and not specially set apart for any purpose on the crucial date did not constitute reserves within the meaning of Schedule II, rule 2(1)." The Supreme Court also referred to s. 131(a) and s. 132 of the Indian Companies Act. Referring; to these sections the Supreme Court observed at p. 505 as follows: "Section 131(a) enjoins upon the directors to attach to every balancesheet a report with respect to the state of the company's affairs and the amount if any which they recommend to be paid by way of dividend and the amount, if any, which they propose to carry to the reserve fund, general reserve or reserve account. The latter section refers to the contents of the balance-sheet which is to be drawn up in the Form marked F in Schedule III. This Form contains a separate head of reserves. Regulation 99 of the 1st Schedule, Table A, lays down that the directors may, before recommending any dividend, set aside out of the profits of the company such sums as they think proper as a reserve or reserves which shall, at the discretion of the directors, be applicable for meeting contingencies, or for equalising dividends, or for any other purpose to which the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debts, reserves for payment of dividend and general reserve. Depreciation reserves within the limit prescribed by, the Income-tax Actor the Rules thereunder is the only reserve which is a permissible allowance in the computation of taxable profits. In its ordinary meaning the expression 'reserve' means something specifically kept apart for future use or for a specific occasion." In the case of Metal Box Company of India Ltd. v. Their Workmen [1969] 73 ITR 53, this court while dealing with a case under the Payment of Bonus Act, 1955, had occasion to consider the expression " reserve " and its meaning for the purpose of the said Act. This court held at pp. 67-68 as follows : "The next question is whether the amount so provided is a provision or a reserve. The distinction between a provision and a reserve is in commercial accountancy fairly well known. Provisions made against anticipated losses and contingencies are charges against profits and, therefore, to be taken into account against gross receipts in the P & L account and the balance-sheet. On the other hand, reserves are appropriations of profits, the assets by which they are represented being retained to form part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e considered in computing the assessee's capital for the purpose of C.(P.) S.T. Act, 1964, and the High Court had rejected this claim. As against the rejection of this claim by the High Court, no appeal had been preferred by the assessee to the Supreme Court. The Supreme Court, while considering the three items which came up for consideration before it, held, as already noted, that the decision of the directors to appropriate the amounts to these three items of reserve on 8th August, 1963, had to be related to 1st April, 1963, and this court observed at pp. 569, 570 as follows: " It is well known that the accounts of the company have to be made up for a year up to a particular day.In this case that day was the 31st March, 1963. If it was reasonably practicable to make up the accounts up to the 31st March, 1963, and present the same to the directors of the respondent on April 1, 1963, they could have made up their minds on that day and declared their intention of appropriating the said and other sums to reserves of different kinds. But the fact that they could not do so for the simple reason that the calculation and collection of figures of all the items of income and expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... othing further happened than a mere recommendation by the directors as to the amount that might be distributed as dividend, it is not possible to hold that there was any debt owed by the assessee to the shareholders on the valuation date." It is further argued that it is open to the shareholders to accept the said recommendations in its entirety or to modify the same by deciding to declare a dividend at a rate lower than the one recommended by the directors. It is, therefore, contended that the recommendation of the directors for payment of dividend does not have the effect of creating any kind of liability and there is no debt owed by the company by virtue of the said recommendations. It has been submitted that the decision of this court in the case of Mysore Electrical Industries Ltd. [1971] 80 ITR 566 is of no assistance and the said decision does not lay down that in the event of the shareholders' acceptance of recommendation made by the directors for the distribution of dividend to the shareholders of the company, the liability for payment of the dividend will also relate back; and the doctrine of relation back applies only in respect of items which the directors are comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... holders. It is also open to the shareholders not to accept the recommendation of the directors in its entirety and to modify the same. The legal liability for the payment of any dividend only arises after the shareholders at the annual general meeting have decided to declare a dividend on the basis of the recommendations of the directors or on the basis of any modification thereof. The liability for the payment of dividend arises only after the dividend has been declared by the shareholders at the annual general meeting and this liability does not relate back to any earlier date on the basis of the recommendations of the directors, as the directors do not enjoy any power of declaring the dividend. The amount that may be set apart for the payment of any dividend on the basis of the recommendations made by the directors, cannot be considered to be an amount set apart for meeting a known or existing liability. Though the amount which is set apart for the payment of any dividend recommended by the board of directors is not an amount set apart for meeting any known or existing liability, yet the said amount so set apart cannot be considered to be a " reserve " within the meaning of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of dividend recommended by the board is an amount which is set apart after the board had created the reserve. The form of balance-sheet referred to in s. 21 of the Companies Act, 1956, is appended in Pt. I of Sch. VI of the Act. In the statutory form there are various heads including heads of various kinds of reserves and also of provisions. In the balance-sheet of the company which has necessarily been prepared in accordance with the provisions of the statute and in the form prescribed, the amount recommended by the board for the payment of dividend has been shown under the head " Provisions " and not under any head of reserves. It is, no doubt, true that the true nature and character of the sum so set apart must be determined with regard to the substance of the matter. The substance of the matter clearly appears to be that the amount is set apart for payment of dividend recommended by the board to be paid to the shareholders and the said amount is never intended to constitute a reserve of the company. Indeed, a provision is made for the payment of the said amount to the shareholders by way of dividend on the basis of the recommendation made by the directors. Though in law the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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