Dividend declared after the valuation date is not an existing liability for surtax capital computation when no dividend reserve was created.

Dividend declared after the relevant valuation date does not relate back to that date for capital computation under the Second Schedule to the Companies (Profits) Surtax Act, 1964. The liability to pay dividend arises only when shareholders declare it in the annual general meeting, not on a directors' recommendation alone. Where no reserve had been created out of the year's profits for dividend distribution, the declared final dividend was not a known or existing liability on the valuation date and therefore did not require deduction from the general reserve. The Supreme Court decision relied on by the Revenue was distinguished on the basis that it concerned a reserve created from current-year profits for dividend distribution.

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Issues: Whether the amount transferred from the general reserve to the profit and loss account for payment of the final dividend had to be reduced from the general reserve in computing the company's capital under the Second Schedule to the Companies (Profits) Surtax Act, 1964.

Analysis: The relevant liability for dividend arises only when dividend is declared by the shareholders in the annual general meeting and does not arise merely from the directors' recommendation. On the facts, no reserve had been created out of the year's profits for distribution of dividend; the dividend was declared later and therefore did not constitute a known or existing liability as on the relevant valuation date. The earlier Supreme Court decision relied on by the Revenue was distinguished because it dealt with a reserve created out of the profits of the year for dividend distribution.

Conclusion: The amount declared as final dividend did not relate back to the relevant date and was not required to be deducted from the general reserve. The question was answered in favour of the assessee.

Ratio Decidendi: A dividend declared after the relevant date does not relate back to that date, and unless a reserve for dividend distribution has been created out of the year's profits, the declared dividend cannot be treated as a known or existing liability for capital computation.

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