COMMISSIONER OF INCOME TAX Vs. ENFIELD INDIA LIMITED

JUDGEMENT

(1.) IN pursuance of the directions given by this Court dt. 4th Nov., 1980 in TCP No. 242 of 1980, the Tribunal has referred the following question for the opinion of this Court under S. 256(2) of the IT Act, 1961 (hereinafter referred to as the Act).

(2.) THE assessee is a private limited company engaged in the business of manufacturing motorcycles, agro industrial engines and other spare parts for the aforesaid, items. While furnishing the return for the asst. yr. 1972-73, the assessee claimed relief under S. 80J of the IT Act on Rs. 3,49,636, being 6% of the capital employed of Rs. 58,27,269. THE ITO, however, computed the capital at Rs. 38,45,962 and restricted the relief to Rs. 2,30,757. In so doing, he has excluded a sum of Rs. 2,40,000 representing provision for proposed dividend, as capital.

(3.) IN Kothari Textiles Ltd. vs. CWT (1963) 48 ITR 816 (Mad), this Court while considering the provisions of S. 2(m) and S. 7(2) of the WT Act, held that the mere recommendation of the directors that a certain dividend can be paid and appropriation can be made in the balance sheet on the basis of that recommendation, does not create a liability on the company to pay any dividend. Both the right on the part of the shareholder to receive the dividend and the liability on the part of the company to pay any amount as dividend, arises only on and after the declaration of the dividend by the General Body.