Commissioner of Income Tax vs Trichy Steel Rolling Mills Ltd.

Thanikkachalam, J.—In compliance with the directions of this Court given in TCP Nos. 26 and 27 of 1980, dt. 5th January, 1981, the

Tribunal referred the following two common questions for the opinion of this Court :

Whether, on the facts and in the circumstances of the case, and having regard to the provisions of Explanation to r. 1 of the Second Schedule

to the Companies (Profits) Surtax Act, 1964, the Tribunal was correct in holding that the sum of Rs. 3,70,000 for the asst. yrs. 1972-73 and

1973-74 representing dividends declared should not be deducted from the capital for the purpose of surtax assessments ?

Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the general reserves 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 under the Companies (Profits) Surtax Act, 1964 ?

Since the figures given in the questions are not correct, we are reframing the questions as under :

Whether, on the facts and in the circumstances of the case and having regard to the provisions of Explanation to r. 1 of the Second Schedule to

the Companies (Profits) Surtax Act, 1964, the Tribunal was correct in holding that Rs. 3,70,000 and Rs. 2,59,000 for the asst. yrs. 1972-73 and

1973-74 representing dividends declared should not be deducted from the capital for the purpose of surtax assessment ?

A similar question came up for consideration before the Supreme Court in Indian Tube Co. P. Ltd. Vs. Commissioner of Income Tax, , wherein

the Supreme Court affirmed the decision of the High Court in Indian Tube Co. Ltd. Vs. Commissioner of Income Tax, , and held that though the

general body of the shareholders resolved and appropriated the sum of Rs. 76 lakhs towards dividend from the reserve of Rs. 90 lakhs on 31st

May, 1963, the appropriation related back to the calendar year 1962 to which it related and, as on 1st Jan., 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. In other words, the Supreme

Court was of the view that the dividends declared should be deducted from the capital for the purpose of surtax assessment. Accordingly, we

answer the question referred to us, in the negative and in favour of the Department.