Surtax recomputation machinery applies to later appellate orders, but post-year proposed dividend is not a reserve

Section 14 of the Companies (Profits) Surtax Act, 1964, as amended from 1 April 1971, is treated as a machinery provision for recomputing chargeable profits and redetermining surtax when income-tax assessments are altered in appeal or revision. On that basis, the amendment was applied to appellate consequences arising after its commencement, enabling consequential recomputation in surtax proceedings. The text also states that a proposed dividend declared after the close of the accounting year cannot be treated as a reserve for surtax purposes for assessment year 1972-73, following the Supreme Court view on that point.

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Issues: (i) Whether the amendment to section 14 of the Companies (Profits) Surtax Act, 1964, with effect from 1 April 1971 applied to assessment years 1969-70 and 1970-71 for recomputation of surtax consequent on appellate orders under the Income-tax Act, 1961; (ii) Whether proposed dividend declared after the close of the accounting year could be treated as a reserve for assessment year 1972-73.

Issue (i): Whether the amendment to section 14 of the Companies (Profits) Surtax Act, 1964, with effect from 1 April 1971 applied to assessment years 1969-70 and 1970-71 for recomputation of surtax consequent on appellate orders under the Income-tax Act, 1961.

Analysis: Section 14 of the Surtax Act provides for recomputation of chargeable profits and redetermination of surtax when the income-tax assessment is altered in appeal or revision. The amendment enlarged the scope of that machinery so as to take account of appellate and revisional orders under the Income-tax Act. The provision was treated as a machinery provision and not as one creating a new substantive burden. Since the Commissioner's final appellate order was made after the amendment came into force, the assessee was entitled to consequential recomputation in the surtax proceedings.

Conclusion: The amendment to section 14 applied, and the Tribunal was right in directing recomputation. The answer was in favour of the assessee and against the Revenue.

Issue (ii): Whether proposed dividend declared after the close of the accounting year could be treated as a reserve for assessment year 1972-73.

Analysis: The question was governed by the Supreme Court's view that a proposed dividend declared after the accounting year does not constitute a reserve for surtax purposes. On that principle, the Tribunal's contrary view could not be sustained.

Conclusion: Proposed dividend declared after the end of the accounting year could not be treated as a reserve. The answer was against the assessee and in favour of the Revenue.

Final Conclusion: The reference was answered on one issue in favour of the assessee and on the other substantive issue in favour of the Revenue, with the question not pressed remaining unanswered.

Ratio Decidendi: An amendment to a surtax recomputation provision that operates as a machinery provision may apply to appellate consequences arising after its commencement, while a proposed dividend declared after the accounting year cannot be treated as a reserve for surtax purposes.

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