ASBESTOS CEMENT LIMITED Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE following question is referred to us under S. 256(1) of the IT Act, 1961, as applied to surtax by S. 18 of the Companies (Profits) Surtax Act, 1964 :

(2.) THE relevant assessment year is 1974 75. The accounting year for this assessment year began on 1st April, 1973. On this day, in the books of account of the assessee company, the balance to the credit of the General Reserve Account was Rs. 2,27,61,653. Out of this amount a final dividend of Rs. 24,66,670 was declared by the assessee company at its annual general meeting held on 6th Sept., 1973.

(3.) LEARNED Advocate for the assessee company has drawn out attention to a decision of the Division Bench of this High Court in the case of CIT vs. Burmah Shell Refineries Ltd. reported in (1989) 80 CTR (Bom) 153 : (1990) 186 ITR 138 (Bom). In that case also the general reserve of the assessee company as on the first day of the accounting period was sought to be reduced by a dividend subsequently declared at the annual general meeting of the assessee company. The Division Bench has held, after considering the Supreme Court judgment in Vazir Sultan Tobacco Co. Ltd. vs. CIT (1981) 25 CTR (SC) 186 : (1981) 132 ITR 559 (SC), that the liability for payment of the dividend arises only after the dividend has been declared at the annual general meeting of the assessee company. This liability does not relate back to any earlier date. In the case before the Division Bench as no separate reserve had been created out of the profits of the company for payment of dividend in future as on the first day of the accounting period, the Division Bench said that the ratio of the Supreme Court judgment in Vazir Sultan Tobacco Company's case would not apply. The general reserve as on the first day of the accounting period cannot, therefore, be reduced to the extent of a dividend which was subsequently declared and which was paid out of this general reserve. The ratio of this judgment directly applies to the facts of the present case where also no reserve had been separately created for payment of dividend on the first day of the accounting period.