Income Tax Appellate Tribunal - Mumbai
Kay Distillery Industries Ltd. vs Second Income-Tax Officer on 13 August, 1987
Equivalent citations: [1988]24ITD376(MUM)
ORDER
I.S. Nigam, Accountant Member
1. This is an appeal filed by the assessee-company against the order of the Commissioner of Income-tax (Appeals) VII, Bombay.
2. The assessee is a limited company and the appeal relates to the assessment year 1981-82, for which the relevant previous year was 1-7-1979 to 30-6-1980. The Board of Directors of the assessee-company at their meeting held on 3-10-1979 passed the following resolution :-
Resolution No. 524 :
RESOLVED that an amount of Rs. 3,75,000 (Rupees Three Lacs Seventy Five Thousand) out of the estimated profits for the financial year 1979, be paid as an interim dividend and the same be distributed on and after 11th October, 1979 to the equity shareholders, whose names stood on the Register of Members as at 3rd October, 1979 @ 25% on the paid-up capital of the company subject to deduction of tax.
In the balance sheet of the company as at 30th June, 1979, this amount of Rs. 3,75,000 was shown under the head 'Current liabilities and provisions' in Schedule H annexed and forming part of the Balance Sheet. It was claimed before the Income-tax Officer that since the interim dividend was declared by a resolution of the Board of Directors dated 3-10-1979 and the interim dividend was payable on or after 11-10-1979, this should not be taken into account in the figure of Current Liabilities and Provisions as appearing in the Balance Sheet on 30th June, 1979 in the computation of capital as on 1-7-1979 for the purpose of working out the deduction under Section 80 J of the Income-tax Act, 1961. This was, however, not accepted by the Income-tax Officer. Even the Commissioner of Income-tax (Appeals) agreed with the Income-tax Officer on this issue. The assessee-company has, therefore, come up with the main point of dispute in the present appeal before us.
3. The learned counsel for the assessee-company, Shri Kamat, at the outset pointed out that there was a distinction between an interim dividend, which, if permitted by the Articles of Association of a company, can be declared by a resolution of the Board of Directors, and the final dividend, which has to be considered and approved by the annual general meeting before it can be distributed. He, therefore, submitted that the liability of the company to declare interim dividend arose only when there was a resolution of the Board of Directors at the meeting held on 3-10-1979 and according to this resolution of the Board of Directors the interim dividend was payable on or after 11-10-1979. Shri Kamat reminded us that according to Section 80J the computation of capital had to be done as on the first day of the computation period, i.e., as on 1-7-1979 in the present case and, therefore, while computing the capital as on 1-7-1979 it is not open to the revenue authorities to take into account liabilities which arose subsequently. Reference was made by him to the ruling of the Hon'ble Supreme Court in the case of J. Dalmia v. CIT [1964] 53 ITR 83 wherein their Lordships laid down that a mere resolution of the Directors to pay a certain amount as interim dividend did not create a debt enforceable against the company for it was always open to the Directors themselves to rescind the resolution before payment of the dividend and the mere fact that the articles of the company authorised the Directors to declare an interim dividend or not to pay an interim dividend made no difference to the true character of the right arising in favour of the members of the company on the exercise by the Board of Directors of the power to declare interim dividend. Shri Kamat then referred to another decision of the Hon'ble Supreme Court in the case of Kesoram Industries & Cotton Mills Ltd. v. CWT [1966] 59 ITR 767 wherein their Lordships explained the meaning of 'the debt owed' as 'debitum in praesenti, solvendum in futuro'. Viewed in this context, according to Shri Kamat, on the first day of the computation period, i.e., 1-7-1979 there was not even the resolution of the Board of Directors to pay the interim dividend, what to say of the approval by the General Body Meeting of the shareholders, which was fixed for 3-12-1979 to consider and adopt the audited Balance Sheet and Profit & Loss Account for the year ended 30th June, 1979 and the reports of the Directors and Auditors. Our attention was then invited by him to Sub-clause (b) of Clause (ii) of Explanation II to Rule 1D of the Wealth-tax Rule, 1957, which specifically excludes the amount set apart for payment of dividends where such dividends have not been declared before the valuation date at a General Body Meeting of the company from the liabilities of the company. Summing up, Shri Kamat vehemently argued before us that the amount of Rs. 3,75,000 declared by the Board of Directors at its meeting held on 3-10-1979 as interim dividend and included in the Provisions of the Balance Sheet as on 30th June, 1979 ought not to have been taken into account in working out the capital as on 1-7-1979 for the purpose of deduction under Section 80J of the Income-tax Act, 1961.
4. On the other hand, the learned departmental representative, Shri Vohra, cited before us the ruling of the Hon'ble Supreme Court in the case of CIT v. Mysore Electrical Industries Ltd. [1971] 80 ITR 566 wherein their Lordships laid down that the appropriations out of profits even if made after the end of the accounting period after approval by the General Body Meeting of the shareholders related back to the year to which they related. On this basis it was claimed that since the provision for interim dividend amounting to Rs. 3,75,000 made in the Balance Sheet of the company as on 30th June, 1979 was approved at the meeting of the general body of the shareholders held in December 1979, the approval will relate back to the year to which the accounts related, i.e., the Balance Sheet as on 30th June, 1979. On this basis, according to Shri Vohra, there was no question of the interim dividend of Rs. 3,75,000 treated as Provisions in the Balance Sheet of the company as on 30th June, 1979 and approved by the shareholders at the General Body Meeting held in December 1979 not being taken into account for working out the capital of the company as on 1-7-1979.
5. We have carefully considered the rival submissions. It is not under dispute that the Balance Sheet of the company as on 30th June, 1979 was approved by the annual general meeting of the shareholders held in December 1979. The Hon'ble Supreme Court in the case of Mysore Electrical Industries Ltd. (supra) has clearly laid down that the appropriations made by the Directors even if after the end of the year when approved by the annual general meeting of the shareholders relate back to the year to which the accounts adopted by the annual general meeting pertained. In these circumstances, there appears to be no justification to take out of account the provision for interim dividend amounting to Rs. 3,75,000 shown in the Balance Sheet as on 30th June, 1979, which was approved by the annual general meeting of the shareholders held in December 1979, in working out the capital of the company as on 1-7-1979. On this issue, therefore, the orders of the revenue authorities appear to be justified and do not call for any interference.
6. The other grounds raised in the appeal before us were not pressed at the time of hearing.
7. The appeal is hereby dismissed.