Sabyasachi Mukharji, J. - (1.) In this reference for the assessment year 1965-66, the following question has been referred to this court: "Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the proposed dividend of Rs. 11,55,908 was a surplus within the meaning of Clause (ii) of Rule 2 of the Second Schedule to the Companies (Profits) Surtax Act, 1964, and should, therefore, be deducted from the cost of investment in shares and only the balance should be deducted from the capital computation under Clause (ii) of Rule 2 of the Second Schedule to the said Act ?"
(2.) The assessment year involved is 1965-66. The assessee is a private limited company. In computing the chargeable profits under the Companies (Profits) Surtax Act, 1964, the assessee claimed that the proposed dividend of Rs. 11,55,908 should not be deducted from the capital base as it constituted a surplus fund within the meaning of Rule 2 of Schedule II to the aforesaid Act. But the ITO did not allow this claim, without stating any reason in his order.
(3.) On appeal, the AAC found that exactly a similar claim had been allowed in the earlier assessment year 1964-65 by him. Following this order for the earlier year, he held that the assessee's claim was admissible and he directed the ITO to modify the assessment accordingly.;