TaxTMI 
TaxTMI 
1981 (9) TMI 34
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....nbsp; Rs. (1) The provision for bad and doubtful debts 1,05,262 (2) The amount of proposed dividend 40,00,000 (3) The provision of retirement benefits 30,04,497 ? " In this case we are concerned with the assessment year 1963-64, with the accounting year ending on 30th June, 1962. The assessee is a l....
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....y the shareholders at the annual general meeting held on 24th October, 1961. The assessee-company in its return claimed the said amount as reserves and sought to include the same in its capital for the purpose of the Super Profits Tax Act, 1963. The ITO rejected the assessee's said claim, holding the said amount to be a " provision " and not a " reserve ". In appeal, the AAC upheld the finding of the ITO. However, the Income-tax Appellate Tribunal, in appeal, held the said amount to be a " reserve ", observing: " The directors who are competent to recommend the dividend had passed a resolution recommending a transfer from the profit and loss account and according to the ratio of the decision of the Bombay High Court in Commissioner of....
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....with a view to constitute it a reserve; secondly, it should be apparent from the surrounding circumstances that the amount so set apart is in fact a reserve to be utilised in future for specific purpose on a specific occasion ; thirdly, clear conduct on the part of the directors in setting apart a sum from out of the mass of undistributed profits avowedly for the purpose of distribution as dividend would be destructive of making that amount a 'reserve'; and, lastly, having regard to the purpose of the rules framed for computing the capital of the company for the purpose of super profits tax in the Second Schedule to the Act, the amounts so set apart should be available to the assessees for being used in its business. The manner in which the....
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....d on the register of members on 8th September, 1961. The said amount of Rs. 40,00.000 was also shown in Sch. II to the company's balance-sheet as on 30th June, 1961, as a second interim dividend along with the first interim dividend that was declared on 5th April, 1961. The facts mentioned above, in our view, comply with the test laid down in the aforecited decision of this court in Shree Ram Mills' case [1977] 108 ITR 27, to hold that the said amount was a " provision ". As observed therein, the said amount of Rs. 40,00,000, set apart towards the proposed second interim dividend, was separated from the general mass of profits by the resolution dated 8th September, 1961, of the board of directors who were competent to do so and that the ....
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....any as on 30th June, 1961. In our view, the said contentions of the learned counsel for the assessee cannot be accepted. The directors' said resolution in terms provides for the said second interim dividend, being in respect of the year ended on 30th June, 1961, making it clear that the said dividend was in respect of the profits earned during the accounting year. That also is made clear in the balance-sheet of the company as on 30th June, 1961. In that regard, the fact that the directors' resolution proposing the declaration of the interim dividend and shareholders' approval to the same were passed and given subsequently, that is, on 8th September, 1961, and 24th October, 1961, respectively, would not make any difference to the matter a....