Law:

Section:

Second Schedule of the Companies (Profit) Surtax Act, 1964 - Capital - Computation of- Whether amount of dividend recommended by directors out of general reserve after first day of accounting year and declared and paid in next year should not be excluded from general reserve in computing capital base - Held, yes - Whether general reserve should not be reduced by amount representing value of bonus shares issued after first day of previous year even though capital had been increased proportionately - Held, yes FACTS The assessee-company's directors recommended payment of dividend to be distributed in the accounting year ending on 31-12-1971 while the assessment year involved was 1972-73. The assessee claimed that the capital for the purpose of surtax assessment was to be computed as on 1-1-1971, i.e., on the basis of the balance sheet of the year ending on 31-12-1970, and not the balance sheet of the following year. The Tribunal allowed the claim of the assessee that the amount of dividend paid out of general reserve after the 1st day of the accounting year and declared and paid in the next year should not be excluded from general reserve in computing the capital base. The assessee-company further issued bonus shares after the 1st day of the previous year but did not reduce the general reserve by the value of bonus shares issued even though the capital had been increased proportionately. The Tribunal, on appeal, held that general reserve could not have been reduced by the amount of bonus shares issued after the first day of the previous year. On reference: HELD On going through the balance sheet of the assessee-company for the year ending on 31-12-1971, the revenue conceded that the impugned amount of dividend proposed was, perhaps considered while computing capital for the assessment year involved due to mistake. Accordingly, the Tribunal was justified in not excluding the said amount out of the general reserve for the year. As to the second issue, the only dispute before the Tribunal was whether reducing of the general reserve by the amount representing the value of bonus shares issued after the first day of the previous year was proper. Following the decision…

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