Dividend appropriation can relate back and reduce general reserve for surtax capital-base computation.

For capital-base computation under the Companies (Profits) Surtax Act, 1964, a dividend appropriation made at a later general body meeting may relate back to the period to which the profits belonged, so the corresponding amount cannot remain part of the general reserve on the first day of the previous year. On that basis, the reserve available on the valuation date is reduced for surtax purposes. The Madras High Court followed the Supreme Court's ruling on the same issue and answered the question in the negative, in favour of the Revenue.

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Issues: Whether, for computing the capital base under the Companies (Profits) Surtax Act, 1964, the general reserve as on the first day of the previous year could be reduced by dividend declared at a later general body meeting.

Analysis: The question was governed by the principle that an appropriation towards dividend may relate back to the period to which the profits belonged, and therefore the amount cannot be treated as an available reserve on the relevant date for surtax computation. The Court followed the Supreme Court decision on the same issue, which held that once the dividend appropriation related back, the corresponding amount ceased to be a reserve and became a provision for the purpose of capital computation.

Conclusion: The question was answered in the negative and in favour of the Revenue.

Ratio Decidendi: For surtax capital-base computation, dividend appropriation made later can relate back to the relevant accounting period, reducing the general reserve available on the valuation date.

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