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Commissioner of Income-tax, Bombay City-iii Vs. Century Spg. and Mfg. Co. Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Case NumberIncome-tax Reference No. 187 of 1976
Judge
Reported in[1977]109ITR209(Bom)
ActsCompanies (Profits) Surtax Act, 1964 - Sections 4 - Schedule - Rule 1
AppellantCommissioner of Income-tax, Bombay City-iii
RespondentCentury Spg. and Mfg. Co. Ltd.
Appellant AdvocateR.J. Joshi, Adv.
Respondent AdvocateS.P. Mehta, Adv.
Excerpt:
- - 56,88,107. in respect of the year ending december 31,1963, the directors recommended that a sum or rs. 1,47,72,153. for the year ending december 31, 1964, the directors recommended that a sum of rs......was an outstanding balance of rs. 17,61,638 as on january 1, 1964, in the dividend equalisation reserve account. out of the profits for the period ending december 31, 1963, a sum of rs. 39,26,469 was also transferred to an credited in this dividend equalisation reserve account. thus, the aggregate amount standing to the credit of the dividend equalisation reserve account as on january 1, 1964, was rs. 56,88,107. in respect of the year ending december 31,1963, the directors recommended that a sum or rs. 56,59,612 ought to be distributed as dividend if approved by the shareholders at the ensuing general meeting. such approval was granted by the shareholders and the amount was distributed. 3. thus, in view of our judgment in super profits tax reference no. 1 of 1972 decided on 30th june,.....
Judgment:

Kantawala, C.J.

1. The two questions referred to in this reference should be reframed as under :

'1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sums of Rs. 10,71,250 and Rs. 45,88,362 for the assessment year 1965-66, being proposed dividend on preference shares and on equity shares, respectively, could not be treated as provision/liability to be excluded from the capital base for the purpose of statutory deduction under the Companies (Profits) Surtax Act, 1964

2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the sums of Rs. 11,60,522 and Rs. 53,53,089 for the assessment year 1966-67, being proposed dividend on preference shares and on equity shares, respectively, could not be regarded as provision/liability and hence the said amounts were not deductible from under the Companies (Profits) Surtax Act, 1964 ?'

2. It is agreed by the counsel on behalf of the revenue and the assessee that the correct facts as regards the assessment year 1965-66 and assessment year 1966-67 are as under :

For the assessment year 1965-66 there was an outstanding balance of Rs. 17,61,638 as on January 1, 1964, in the dividend equalisation reserve account. Out of the profits for the period ending December 31, 1963, a sum of Rs. 39,26,469 was also transferred to an credited in this dividend equalisation reserve account. Thus, the aggregate amount standing to the credit of the dividend equalisation reserve account as on January 1, 1964, was Rs. 56,88,107. In respect of the year ending December 31,1963, the directors recommended that a sum or Rs. 56,59,612 ought to be distributed as dividend if approved by the shareholders at the ensuing general meeting. Such approval was granted by the shareholders and the amount was distributed.

3. Thus, in view of our judgment in Super Profits Tax Reference No. 1 of 1972 decided on 30th June, 1976, 1st July, 1976 Shree Ram Mills Ltd. v. Commissioner of Income-tax : [1977]108ITR27(Bom) ] and in Surtax Reference No. 138 of 1973 decided on July 29,1976 [Commissioner of Income-tax v. Geoffrey Manners & Co. : [1977]109ITR172(Bom) ], question No. 1 as reframed above should be answered as under :

For the assessment year 1965-66, a sum of Rs. 17,61,638 out of the amount standing to the credit of the dividend equalisation reserve account should be treated as reserve for computing the capital base.

4. For the assessment year 1966-67 as on January 1, 1965, being the first day of the previous year a sum of Rs. 28,495 was standing to the credit of the dividend equalisation reserve account. For the year ending December 31, 1964, a sum of Rs. 1,47,43,658 was transferred from the development reserve account to the dividend equalisation reserve account and the total sum standing to the credit of the dividend equalisation reserve account as on January 1, 1965, was Rs. 1,47,72,153. For the year ending December 31, 1964, the directors recommended that a sum of Rs. 65,13,611 should be distributed as dividend if the same was approved of by the shareholders at the annual general meeting. Such approval was granted by the shareholders and the said amount of dividend was distributed. Thus, so far as question No. 2 is concerned, our answer is as under :

For the assessment year 1966-67, the dividend equalisation reserve should not be reduced by any amount as no amount had been transferred from the profit and loss account for distribution of dividend, but the amount of Rs. 1,47,43,658 was transferred to the dividend equalisation reserve account from the development reserve in the preceding year out of which the dividend was distributed. Thus, for the assessment year 1966-67, the whole of the sum of Rs. 1,47,72,153 should be included in the computation of capital for the purposes of surtax for the assessment year 1966-67.

5. There will be no order as to costs.


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