ARIJIT PASAYAT, C.J. (ORAL) - (1.) Accepting prayer for reference made by the Revenue by applications underSection 2561(1) of the Income-tax Act, 1961 ('the Act' for short), the Income-taxAppellate Tribunal, Delhi Bench-E ('the Tribunal' for short) has referred the followingquestions, pertaining to assessment years 1973-74 and 1974-75, for opinion of thisCourt:"1. Whether on the facts and in the circumstances of the case the Tribunalwas justified in including the dividends of Rs.7,37,028.00 and Rs. 27,27,790.00declared by the assessee company in respect of the assessment years1973-74 and 1974-75 respectively in the capital base on the fist day inrespect of the respective accounting periods relevant to the assessmentyears 1973-74 and 1974-75 for the purpose of computing the chargeableprofits under the Companies (profits) Sur-tax Act, 1964?2. Whether on the facts and in the- circumstances of the case, the Tribunalwas justified in confirming the direction given by the Appellate AssistantCommissioner to the Income-tax Officer that the capital of the assesseecompany was not to be reduced by an amount of Rs.19,04,304.00 representingcapital for relief under Section 80-J for each of the assessment years 1973-7.4 and 1974-75?"
(2.) A brief reference to the factual aspects would suffice. Assessee adopts thecalendar year as its period of accounting. The accounts were closed on 3 1/12/1972 and 31/12/1973 respectively for the concerned twoassessment years. Assessee claimed that sum of Rs.7,37,028.00 and Rs.27,27,790.00, which were ultimately declared as dividend after the annual general meetings heldrespectively on 19/06/1973 and 3/06/1974, qualified for inclusion in thecapital base under the Companies (Profits) Sur-tax Act, 1964 (for short 'the Sur-taxAct'). The Sur-tax Officer, rejected the assessee's claim and excluded the dividendsfor both the years on the ground that the assessee company did not make anyappropriation of profits by making a provision for dividend in the accounts and wasnot thus entitled to lessen the incidence of sur-tax. Relief claimed under Section 80Jof the Act while computing the capital also was a subject-matter of dispute. It washeld by the Assistant Appellate Commissioner (AAC for short) that assessee's claimunder Section 80J was allowable. Revenue challenged the ACC's order before theTribunal. Reliefs granted on the aforesaid two scores were assailed. Tribunal heldthat when dividend becomes payable out of the general reserve, there was noquestion of making any provision for the dividend which can be deducted from thegeneral reserve for the purpose of determining the capital of the company under theSur-tax Act. It was inter alia observed that in such a case, the liability arisesprospectively and, therefore, there is no question of any relating back to the first dayof the accounting year. It was held that a subsequent approval can relate back to anact which was performed earlier; and if there was no act performed earlier, there isno question of subsequent approval relating back to the same. So far as relief underSection 80J of the Act is concerned, reliance was placed on a decision of theKarnataka High Court in Stumpp, Schuele & Somappa Pvt. Ltd v. SecondIncome-tax Officer, Company Circle, Bangalore and Others (1976) 102 ITR 320and Second income-tax Officer, Company Circle, Bangalore and Another's.Stumpp, Schuele and Somappa Private Limited (1977) 106 ITR 399 to sustainrelief granted by the assessee.
(3.) Learned counsel for the Revenue submitted that approach of the Tribunal iserroneous because the liability arises only retrospectively and there is no question ofit arising prospectively. Relief granted under Section 80J was assailed on the groundthat the provisions have been misinterpreted. Learned counsel for the assesseesupported the conclusions of the AAC and the Tribunal. So far as relief under Section80J is concerned, reliance was placed by him on a decision of the Apex Court inSecond Income-tax Officer and Another's. Stumpp Schuele and Somappa P.Ltd. (1991)187 ITR 108 to submit that the relief granted was in order.;