TaxTMI 
TaxTMI 
1981 (3) TMI 45
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....n at Rs. 24,22,429. The plea of the assessee before the ITO was that the reserves should betaken at Rs.. 46,11,711 as shown in the accounts of the assessee and not at Rs. 24,22,429 as shown in the balance-sheet as on 31st March, 1962. The assessee's contention was that the loss had been adjusted in the balance-sheet as it was required under the provisions of the Companies Act, but the assessee's accounts disclosed the reserves at Rs. 46,11,711 and that, according to the provisions of the S.P.T. Act of 1963, the reserves were to be taken as shown in the accounts and not as shown in the balance-sheet. The ITO did not accept the assessee's contention. He was of the opinion that the reserves and losses could not co-exist and the real state of a....
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....ibunal followed the order of the Tribunal in the case of Dalhousie Jute Company and, therefore, rejected the revenue's contention. In the circumstances aforesaid, the Tribunal has referred to this court under s..256(1) of the I.T. Act, 1961, the following question: " Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that in computing the capital base of the assessee-company the reserves should be taken at Rs.46,11,711 as shown in the accounts and not at Rs. 24,22,429 as shown in the balance-sheet as on 31st March, 1962, after adjusting the loss of Rs. 21,89,282 ?" Now, as the Tribunal had referred to the decision in the case of Dalhousie Jute Company for the assessment year 1963-64, it m....
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....) of s. 10 of the Indian I.T. Act, 1922, or under sub-s. (3) of s. 34 of the I.T. Act, 1961, and of its other reserves in so far as the amounts credited to such other reserves have not been allowed in computing its profits for the purposes of the Indian I.T. Act, 1922, or the I.T. Act, 1961, diminished by the amount by which the cost to it of the assets the income from which, in accordance with cl. (iii) or cl. (vi) or cl. (viii) of r. 1 of Sch. I, is not includible in its chargeable profits, exceeded the aggregate of the amount mentioned in the different clauses. So far the material question is whether the computation of the capital would be made of the amounts as on the first day of the previous year relevant to the assessment year. Now, ....
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....ack; to retain or hold over to a future time or place. 3. To preserve.' What is the true nature and character of the disputed sum, must be determined with reference to the substance of the matter and when this is borne in mind, it follows that on the 1st of April, 1946, which is the crucial date, the sum of Rs. 5,08,637 could not be called a 'reserve', for, nobody possessed of the requisite authority had indicated on that date the manner of its disposal or destination. On the other hand, on the 28th February, 1946, the directors clearly earmarked it for distribution as dividend and did not choose to make it a reserve. Nor did the company in its meeting on the 3rd April, 1946, decide that it was a reserve. It remained on the I St of Ap....
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....d as dividend to the shareholders but kept back by the directors for any purpose to which it may be put in future. Therefore, giving to the 'reserves' its plain natural meaning it is clear that the sum of Rs. 5,08,637 was kept in reserve by the company and not distributed as profits and subjected to taxation. Therefore, it satisfied all the requirements of rule 2'. The directors had no power to distribute the sum as dividend. They could only recommend, as indeed they did, and it was up to the shareholders of the company to accept that recommendation in which case alone the distribution could take place. The recommendation was accepted and the dividend was actually distributed. It is, therefore, not correct to say that the amount was kept ba....