9911796707
TMI Blog1981 (9) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... (2) The amount of proposed dividend 40,00,000 (3) The provision of retirement benefits 30,04,497 ? " In this case we are concerned with the assessment year 1963-64, with the accounting year ending on 30th June, 1962. The assessee is a limited company. In its return for the assessment year 1963-64 it had included the said three amounts in its capital as reserves for computation of capital under the Super Profits Tax Act, 1963. As regards item No. 1, namely, Rs. 1,05,262 representing provision for bad and doubtful debts, and item No. 3, namely, Rs. 30,04,497 representing provision for retirement benefit, it is agreed between the learned counsel for the parties that the said amounts having been set apart only o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be a " reserve ", observing: " The directors who are competent to recommend the dividend had passed a resolution recommending a transfer from the profit and loss account and according to the ratio of the decision of the Bombay High Court in Commissioner of Income-tax v. Aryodaya Ginning Mfg. Co. Ltd. [1957] 31 ITR 145 (Bom), it would relate back to 30-6-1961. When the shareholders accepted the recommendation, the shareholders became entitled to the dividend as from the date of declaration. This liability cannot be related back to any earlier date. As on 1-7-1961, with the directors setting apart the amount of Rs. 40,00,000, it was not a mere mass of undistributed profit." It is this, finding of the Tribunal that is challenged befo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of the rules framed for computing the capital of the company for the purpose of super profits tax in the Second Schedule to the Act, the amounts so set apart should be available to the assessees for being used in its business. The manner in which the directors in their report had indicated the appropriation of the balance of the gross profits after making provision for commission agency, depreciation and tax, viz., that Rs. 11 lakhs odd should be appropriated towards payment of proposed final dividend at the rates indicated in the report, and having regard to the manner in which this particular item has been shown in the balance-sheet as on December 31, 1961, and in the profit and loss account for the year ended December 31, 1961, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herein, the said amount of Rs. 40,00,000, set apart towards the proposed second interim dividend, was separated from the general mass of profits by the resolution dated 8th September, 1961, of the board of directors who were competent to do so and that the conduct of the directors manifested by the said resolution in setting apart the said amount from the mass of undistributed profits for the purpose of distribution of dividend was destructive of the said amount being reserves and that the said amount could riot be thereafter available to the company for being used in its business. So also the directors have in the balance-sheet of the company as on 30th June, 1961, indicated that after making a provision for the liabilities, the said amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s' resolution proposing the declaration of the interim dividend and shareholders' approval to the same were passed and given subsequently, that is, on 8th September, 1961, and 24th October, 1961, respectively, would not make any difference to the matter as the said resolution and approval would relate back to 30th June, 1961. In that view of the matter, we are unable to accept the said finding of the Tribunal as regards the said amount of Rs. 40,00,000, set apart by the company for the second interim dividend, being a reserve. In our view, the said amount cannot be treated as " reserve " but could be treated only as " provision " for the purpose of the Super Profits Tax Act, 1963. Accordingly, we answer the question as follows: As reg ..... X X X X Extracts X X X X X X X X Extracts X X X X
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