Post-year dividend appropriation reduces surtax capital base because it relates back to the relevant accounting period.

For surtax computation under the Second Schedule to the Companies (Profits) Surtax Act, 1964, dividends declared after the first day of the accounting year were required to be reduced from the capital base because later shareholder appropriation of reserve relates back to the period to which the dividend pertains. On that principle, the amount could not remain part of the reserve available on the relevant valuation date. The reference was answered against the assessee and in favour of the Revenue.

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Issues: Whether dividends declared after the first day of the accounting year were required to be reduced from the capital base for the purpose of levy of surtax.

Analysis: The question arose in computing the capital base under the Second Schedule to the Companies (Profits) Surtax Act, 1964. The Court noted that the issue was governed by the principle that where shareholders subsequently appropriate amounts out of reserve towards dividend, the appropriation relates back to the period to which the dividend pertains. On that basis, the amount could not be treated as a reserve available for capital-base computation on the relevant date.

Conclusion: The dividend declared subsequent to the first day of the accounting year was to be reduced from the capital base. The answer was against the assessee and in favour of the Revenue.

Final Conclusion: The reference was answered by applying the settled surtax computation principle that post-year dividend appropriation affects the characterization of the relevant amount for capital-base purposes.

Ratio Decidendi: For surtax computation, an amount appropriated as dividend after the relevant valuation date is treated according to the appropriation's true relation to the relevant accounting period and cannot be retained as part of the reserve for capital-base purposes.

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