1992 (1) TMI 188

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.... is appropriated towards proposed dividends and the sum set apart as provision for taxation should be taken into reckoning for the purposes of calculating the 'capital employed' within the meaning of the said section. The Assessing Officer, purporting to rely on the Supreme Court case of Vazir Sultan Tobacco Co. Ltd. v. CIT [1981] 132 ITR 559 left the sums out of reckoning. The CIT(Appeals) allowed the assessee's claim in the following words : ' During the appeal hearing the learned representative of the assessee contended pointing to the sub-section 3 of section 19 (sic) that only borrowed money and debt due shall be deducted in computing capital. He suggested that provision for taxation still constituted monies available with the appella....

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....ed order of the first appellate authority on this issue contending that under the scheme of the Act only borrowed monies and debt owed by the assessee (including amounts due towards any liability in respect of tax) could be deducted from the aggregate of the amounts representing the values of the assets as on the first day of the computation period. The sum set apart under the heading 'proposed dividend' cannot be regarded as a debt owed by the assessee and consequently the sum in question cannot be ignored while computing the capital employed. According to Shri Ramamani, the issue stands fully covered, in favour of the assessee, by the decision in the case of Kesoram Industries & Cotton Mills Ltd. v. CWT [1966] 59 ITR 767 (SC). According t....

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....ial undertaking, within the meaning of section 80J. 6 per cent of the said resultant figure represents the deduction admissible under section 80J(1). 8. It will be ex facie clear from the foregoing that the higher the capital employed, the higher the amount of deduction admissible under section 80J(1). The Assessing Officer held that the provision for proposed dividends will not be taken into account for purpose of computing the capital employed. The CIT(Appeals) reversed the said decision. The question that arises for consideration is whether the CIT(Appeals) was justified in doing so. 9. As we see it, the answer to the said question will have to be given with reference to the provisions of section 80J(1A)(III) of the act. The said claus....

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....Ltd. , the Supreme Court observed : " All that follows from the above is that in the instant case the appropriation of the concerned amounts by the Board of Directors by way of providing for proposed dividend would not constitute 'provisions', for, the appropriation cannot be said to be by way of providing for any known or existing liability, none having arisen on the date when the directors made the recommendation much less on the relevant date being the first day of the previous year relevant to the assessment year in question. " Thereafter, it turned its attention to the question whether that by itself would automatically convert the appropriation into a reserve and concluded that it would not. 11. From the foregoing it will be clear t....