COMMISSIONER OF INCOME-TAX VS VARADALAKHSMI MILLS LTD., 1998 PTD-MADRAS-HIGH-COURT-INDIA 3265 (1996)

Income-tax---

----Company---Surtax---Computation of capital---Reserves---Dividend---To be deducted from reserves---Indian Companies (Profits) Surtax Act, 1964.

For the purpose of computing the capital base under the Companies (Profits) Surtax Act, 1964, the general reserve as on the first day of the previous year should be reduced by the amount of dividend declared later at the general body meeting. Indian Tube Co. (P.) Ltd. v. CIT (1992) 194 ITR 102 (SC) fol

C.V. Rajan for the Commissioner.

P.P.S. Janarthana Raja for the Assessee

JUDGMENT

THANIKKACHALAM, J.---In pursuance of the direction given by this Court T.C.C. No. 381 of 1979, dated January 5, 1979, the Tribunal referred the following question of law for the opinion of this Court under section 256(1) of the Income Tax Act, 1961:

"Whether, on the facts and in the circumstances of this case, the Appellate Tribunal was correct in holding that the ' general reserve' as on the first day of the previous year should not be reduced by the amount of dividend declared at a future date at the general body meeting for the purpose of computing the capital base under the Companies (Profits) Surtax Act, 1964 ?"

A similar question came up for consideration before the Supreme Court of India in the case of Indian Tube Co. (P.) Ltd. v. CIT (1992) 194 ITR 102 wherein the Supreme Court held, affirming the decision of the High Court, that though general body of the shareholders resolved and appropriated the sum of Rs.76 lakhs towards the dividend from the reserve of Rs.90 lakhs on May 31, 1963, the appropriation related back to the calender year 1962 to which it related and, as on January 1, 1963, the sum of Rs.76 lakhs was a provision and only Rs.14 lakhs could be treated as a reserve in the computation of capital for the purpose of surtax.

The question that arose for consideration in the above said decision was whether for the previous year 1963 relevant to the assessment year 1964 65, the entire amount of Rs.90 lakhs could be included in the capital computation as a reserve for the purposes of surtax under the Companies (Profits) Surtax Act, 1964. While answering this question the Supreme Court held as stated above. In view of the above decision of the Supreme Court, we answer the question referred to us in the negative and in favour of the Department. There will-be no order as to costs.

M.B.A./1636/FC Order accordingly.