1988 (12) TMI 15 - HC - Income Tax

Company Capital Calculation: Dividend Reserve Transfer Not Deductible

The High Court of Bombay held in favor of the assessee, ruling that the amount transferred from the general reserve to the profit and loss account for ... Company, Surtax The High Court of Bombay ruled in favor of the assessee, stating that the amount transferred from the general reserve to the profit and loss account for paying the final dividend should not be reduced from the general reserve in computing the capital of the assessee-company. The court found that the liability for dividend payment arises only after it has been declared by the shareholders at the annual general meeting, and that this liability does not relate back to any earlier date based on directors' recommendations. The Supreme Court decision cited was deemed not applicable to the case, as no reserve for distributing dividends was created from the profits of the year. The question of law was answered in favor of the assessee.