TMI Blog1993 (2) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... rs of the assessee-company in their reports dated January 25, 1972, and January 20, 1973, recommended equity dividends of Rs.5,40,000 and Rs. 6,30,000, respectively, from out of the profits of the years ending on September 30, 1971, and September 30, 1972. These were approved by the shareholders in the annual general meeting held on March 17, 1972, and March 15, 1973, respectively. It was contended by the assessee that the recommendation for the declaration of dividend was not done on the first day of the previous year much less was there any declaration of dividend on that date and hence the general reserves cannot be reduced by the quantum of dividends which have been subsequently declared. The Tribunal has held that there was no liabil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and transferred to the general reserve account. The company declared dividends out of the general reserve as follows: Rs. For 1967-68 on 1-10-1968 4,50,000 For 1968-69 on 1-10-1969 5,40,000 The Tribunal has held that the general reserves on the first day of the accounting period have to be reduced by the amount of dividends so declared. Hence, the following question has been referred to us under section 256(1) of the Income-tax Act, 1961 : "Whether, on the facts and in the circumstances of the case, the amounts of proposed dividends have to be excluded from the general reserve for the purposes of assessments to surtax for the assessment years 1970-71 and 1971-72, respectively ?" Income-tax Reference No. 230 of 1978 : In this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal, the following common question of law for the three assessment years is referred to us : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the amount standing to the credit of the general reserve as on the first day of the previous year should be reduced by the dividend declared from it after the first day of the previous year for the purpose of computing the capital base under the Companies (Profits) Surtax Act, 1964 ?" In the case of Vazir Sultan Tobacco Co. Ltd. v. CIT [1981] 132 ITR 559, the Supreme Court has dealt at length with the distinction between a reserve and a provision. It has held that if any retention or appropriation of a sum falls within the definition of a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apart would have to be ignored or excluded from the capital computation although they were so set apart after the first day of the relevant year. In the case of Indian Tube Co. P. Ltd. v. CIT [1992] 194 ITR 102 (SC), which was also a case under the Companies (Profits) Surtax Act, 1964, in respect of the accounts of the appellant-company for the calendar, year 1962, its board of directors, in a meeting held on May 1, 1963, approved transfer of Rs. 90 lakhs out of the profits to the Dividend Reserve Account. In the general meeting held on May 31, 1963, the shareholders declared a dividend of Rs. 76 lakhs as recommended by the board. The dividend was paid subsequently by transferring the sum of Rs. 76 lakhs from the Dividend Reserve Account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (P.) Ltd. v. CIT [1981] 132 ITR 559, which has also been one of the matters dealt with by the Supreme Court in the case of Vazir Sultan Tobacco Co. Ltd. [1981] 132 ITR 559. Our attention in this regard is drawn by Mr. Mistry, learned counsel for the assessee (in Income-tax Reference No. 230 of 1978), to the case of CIT v. Burmah Shell Refineries Ltd. [1990] 186 ITR 138 (Bom). In the above case, the relevant date for capital computation was December 31, 1963. In the report for the year dated March 17, 1964, the directors had recommended a final dividend to be paid out of the general reserves, if approved by the shareholders at the annual general meeting. In May, 1964, the annual general meeting approved the directors' recommendations and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the computation period and cases where either a general reserve or a dividend reserve has been expressly created on the first day of the subsequent year. He has submitted that when a reserve has been expressly made on the first day of the computation period, it cannot be subsequently diminished with reference to the dividend subsequently paid out of the reserve. This argument cannot be accepted in view of the decision of the Supreme Court in the case of Indian Tube Co. P. Ltd. [1992] 194 ITR 102. In the premises, the questions which are referred to us are answered as follows: Income-tax Reference No. 233 of 1978: The question is answered in the negative and in favour of the Revenue. Income-tax Reference No. 335 of 1978 : The que ..... X X X X Extracts X X X X X X X X Extracts X X X X
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