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Commissioner of Income-tax and Surtax Vs. Standard Pharmaceuticals Ltd. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 559 of 1972
Judge
Reported in[1979]119ITR101(Cal)
ActsCompanies (Profits) Surtax Act, 1964 - Schedule - Rule 1; ;Income Tax Act, 1961 - Section 256
AppellantCommissioner of Income-tax and Surtax
RespondentStandard Pharmaceuticals Ltd.
Appellant AdvocateAjit Sengupta and ;Prabir Majumdar, Advs.
Respondent AdvocateSukumar Bhattacharyya and ;R.K. Dutt, Advs.
Excerpt:
- .....1964. the item in dispute is an amount of rs. 2,97,277. the assessee claimed this fund to be a dividend reserve and submitted that it should be included in the computation of the capital of the assessee under rule 1(iii) of the second schedule to the said act. the ito held that this amount represented only a surplus in the profit and loss account and was not a reserve within the meaning of the said act.2. being aggrieved, the assessee preferred an appeal. the aac rejected the contentions of the assessee on the ground that the said amount did not represent any reserve but was only a provision for the anticipated liabilities in connection with the declaration of dividends.3. the assessee appealed further to the income-tax appellate tribunal. the tribunal found that a reserve of the.....
Judgment:

Dipak Kumar Sen, J.

1. This reference arises out of the assessment of Standard Pharmaceuticals Ltd., Calcutta, the assessee, to surtax under the C. (P.) S.T. Act, 1964, in the assessment year 1964-65, the previous year relevant whereto ended on the 31st March, 1964. The item in dispute is an amount of Rs. 2,97,277. The assessee claimed this fund to be a dividend reserve and submitted that it should be included in the computation of the capital of the assessee under Rule 1(iii) of the Second Schedule to the said Act. The ITO held that this amount represented only a surplus in the profit and loss account and was not a reserve within the meaning of the said Act.

2. Being aggrieved, the assessee preferred an appeal. The AAC rejected the contentions of the assessee on the ground that the said amount did not represent any reserve but was only a provision for the anticipated liabilities in connection with the declaration of dividends.

3. The assessee appealed further to the Income-tax Appellate Tribunal. The Tribunal found that a reserve of the said amount of Rs. 2,97,277 had been created for the purpose of declaration of dividend in future. Though in the relevant year the said reserve had been transferred to the dividend account for the purpose of such declaration of dividend but at the beginning of the period the said amount was kept as a reserve. The Tribunal did not accept the contentions of the revenue that the said amount was set apart for meeting any contingent liability. It was held that the amount should be included in the computation of the capital of the company.

4. At the instance of the Commissioner of Income-tax and Surtax, West Bengal-III, Calcutta, under Section 256(1) of the I.T. Act, 1961, read with Section 18 of the C. (P.) S.T. Act, 1964, the Tribunal has drawn up a statement of case and has referred the following question of law for the opinion of this court:

' Whether, on the facts and in the circumstances of the case, the Tribunal is right in holding that the sum of Rs. 2,97,277 credited to ' dividend reserve ' account is a ' reserve' under Rule 1(iii) to the Second Schedule to the Companies (Profits) Surtax Act, 1964 ?'

5. It appears from the records that, after the draft statement was circulated, the revenue sought to include the following in the statement :

'The movement of the funds in this account above shows that Rs. 2,97,277 was actually paid in the accounting year 1963-64 under review as dividends for the preceding year.'

6. It was admitted by the revenue that this fact had not been found by any of the authorities below. In the circumstances, the Tribunal did not allow it to be incorporated in the statement.

7. At the hearing Mr. Ajit Sengupta, learned counsel for the revenue, invited us to look into the balance-sheet of the assessee for the relevantassessment year. He submitted that on a consideration of the balance-sheet it would appear that the amount in dispute could not be a reservebut was only a provision for a contingent liability inasmuch as dividend tothe extent of the said amount was declared in the very same accountingyear and was in fact paid and distributed as dividend. Mr. Senguptacontended further that the item, though described as dividend reserve, wasnothing but proposed dividend which was in fact proposed and declaredduring the year in question. He cited a decision of the Bombay HighCourt in CIT v. Hindustan Sugar Mills Ltd. : [1977]107ITR659(Bom) , where itwas laid down that the proposed dividend could not be included in thecomputation of the dividend for the purpose of assessment of the C. (P.) S.T.Act, 1964. He also cited a decision of this court in Braithwaite and Co.(India) Ltd. v. CIT : [1978]111ITR729(Cal) , wherein it was also held thata proposed dividend could not be treated as a reserve as the amount remained a mass of undistributed profits of the company.

8. Learned counsel for the assessee has, on the other hand, relied on a decision of the Supreme Court in CIT v. Mewar Textile Mills Ltd. : [1966]60ITR169(SC) , for the proposition that the High Court sitting in an advisory jurisdiction should not look into documents which have not been included in the statement of case and which were not mentioned or discussed in any of the orders below.

9. From the records, it appears that at no stage of the proceedings below was the balance-sheet relied on or produced by the revenue. It has been found as a fact by the Tribunal that the said amount of Rs. 2,97,277 has been segregated as a reserve. This finding of fact has not been challenged. It is this fact which, it appears, distinguishes the case from the decision of the Supreme Court in Century Spinning & . : [1953]24ITR499(SC) , where the directors did not segregate the amount from the profit and loss account and carried it over to the next year. The Supreme Court, therefore, held that the amount represented a mass of undistributed profits. The AAC no doubt has dubbed it to be a provision for anticipated liability but there is no further finding by the AAC whether the liability was contingent or whether it could be ascertained with reasonable accuracy.

10. In any event such finding of the AAC has been negatived by the Tribunal. Mr. Sengupta invited us to send back the matter for further enquiry on the basis of the balance-sheet. By reason of the facts stated hereinbefore and the Tribunal having rejected the application of the revenue whereby it sought to incorporate the basic facts on which the case of the revenue depended in the order, we are not satisfied that this is a fit and proper case where a further enquiry should be made in the matter. No doubt on occasions the High Court has remanded matters to the Tribunal for further enquiry, but that course is followed only in exceptional cases and generally where an item of evidence produced before the authorities below had not been considered. This is not the case here.

11. For the above reasons, we answer the question in the affirmative and in favour of the assessee. There will be no order as to costs.


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