Dividend reserve treated as capital reserve for surtax purposes where Tribunal's factual finding remained undisturbed.

An amount credited to a dividend reserve account was treated as a reserve for surtax computation where the Tribunal had found, as a matter of fact, that it was segregated for future declaration of dividend. The court declined to reopen that finding on fresh material not found below or included in the statement of case, and accepted that in reference jurisdiction a contrary conclusion cannot rest on new facts. The amount therefore fell within rule 1(iii) of the Second Schedule to the Companies (Profits) Surtax Act, 1964, and was includible in capital computation.

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Issues: Whether the sum credited to the "dividend reserve" account was a reserve within rule 1(iii) of the Second Schedule to the Companies (Profits) Surtax Act, 1964, so as to be included in the computation of capital.

Analysis: The amount in question had been found by the Tribunal to have been segregated as a reserve for future declaration of dividend, and that finding of fact was not challenged. The revenue sought to rely on a balance-sheet and on a further factual enquiry to contend that the amount represented only a provision for contingent liability or proposed dividend, but those basic facts had not been found by the authorities below and were not part of the statement of case. In the reference jurisdiction, the court declined to reopen the matter on fresh material and accepted the Tribunal's factual finding that the amount stood as a reserve.

Conclusion: The amount was a reserve within rule 1(iii) of the Second Schedule to the Companies (Profits) Surtax Act, 1964, and the question was answered in the affirmative in favour of the assessee.

Ratio Decidendi: In a reference, an amount segregated as a reserve and found as such by the Tribunal must be treated as a reserve for surtax purposes unless that finding is disturbed on the record, and the court will not base a contrary conclusion on fresh facts not found below.

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