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TMI Blog1983 (8) TMI 71X X X X Extracts X X X X X X X X Extracts X X X X ..... would not be an outstanding liability of the company to be deductible, from the value of the assets while computing capital employed." [For assessment year 1973-74 amount is Rs. 3,14,465.] Both the appeals involve a common ground, they are disposed of by this common order. 2. While computing capital employed under section 80J of the Income-tax Act, 1961 ('the Act') as amended by the Finance (No. 2) Act, 1980, the ITO deducted the amount of liability in respect of accumulated dividend on preference shares for the years ended on 31-5-1971 and 31-5-1972. The assessee pleaded that it was a contingent liability and, therefore, not deductible from the capital employed. The ITO rejecting the argument of the assessee observed that on page 16 of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be made as per the contract and the terms of issue and, therefore, receipt or payment by/to the shareholders did not make any material difference. 5. The learned counsel for the assessee submitted that there was no liability at all because the dividends were not declared and reliance was placed on in the case of Mrs. Kusumben D. Mahadevia v. CIT [1963] 47 ITR 214 regarding time of declaration of dividend, etc., as decided by the Hon'ble Bombay High Court. 6. We have heard patiently the submissions made by both the representatives and have also gone through the material placed before us. 7. It was really an exhilerating odyssey to ponder over the issue involved. In respect of the cumulative preference share dividend could be deducted fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... athai Chandy v. H.L. Motor Union Ltd. ILR [1955] Trav. 73. Mere fact that in the case of preference shareholders fixed dividend is to be distributed and that the same has to be cumulative from year to year does not create a right to claim dividend in favour of the preference shareholder unless and until a dividend is declared by the company. It is, to put on plainly, only a condition that when the profits are distributed, first the preference shareholders have a preference over the profits to be distributed. The right of accumulation in respect of dividend for past years is given because that will ensure certainty of return of investment. There can be no declaration of dividend for past years in respect of which the accounts have already be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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