Grover, J. - (1.) Civil Appeal No. 1344 of 1971 is by special leave from a judgment of the Bombay High Court in an Income-tax reference. The other appeal was brought by certificate against the same judgment. But the certificate being defective for want of reasons, the same had to be revoked.
(2.) The assessee is a public limited company which was incorporated on March 25, 1955. Part of its paid up capital consisted of 60,000 six per cent, (free of tax) cumulative preference shares of Rupees 100/each. As the company did not make profits out of which it could distribute dividend no dividend was declared on the preference shares during the years of account ended on June 30, 1956, June 30, 1957 and June 30, 1958. During the account year ended on June 30, 1960, the company made profits. On February 9, 1960 the Board of Directors of the Company passed the following resolution:- "That dividends on 60,000 cumulative Preference shares of Rupees 100/- each in respect of the years ended 30th June, 1956 and 1957 remaining in arrears be paid at the rate of 6% (free of tax) * * * * out, of the profits of the current year ending 30th June, 1960."
(3.) The dividends were diststbuted in accordance with the resolution of April 25, 1960. On May 30, 1960, the Board of Directors passed a similar resolution for distributing the dividends on the preference shares in respect of the year ended on June 30, 1958. These dividends were actually paid from June 24, 1960, onwards. Adjustments with regard to these dividends were made in the balancesheet prepared as at June 30, 1960.;