Sabyasachi Mukharji, J. - (1.) In this reference under Section 256(1) of the I.T. Act, 1961, for the assessment year 1965-66, the Tribunal has referred to us the following question : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that in the computation of capital, the assessee was not entitled to the benefit of deduction of proposed dividend in terms of Section 2(8) of the Companies (Profits) Surtax Act, 1964, and the Second Schedule thereunder ?"
(2.) After hearing the parties and considering the facts of the case it appears to us that it wilt be more appropriate to reframe the question to bring out the correct controversy in the manner following : "Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that in the computation of capital the company was not entitled to the benefit of deduction of proposed dividend from its cost of investments in terras of Clause (ii) of Rule 2 of the Second Schedule to the Companies (Profits) Surtax Act, 1964 ?"
(3.) Therefore, the question before us is whether, in the computation of capital, it is proper to deduct the proposed dividend from its cost of investments in terms of Clause (ii) of Rule 2 of the Second Schedule to the C. (P.) S.T. Act, 1964. In order to appreciate the controversy it would be necessary to refer to certain facts. The assessee is M/s. Duncan Brothers & Co. Ltd. and the accounting year of the assesses ended on 31st December, 1964, corresponding to the assessment year 1965-66. In the proceeding for assessment of surtax, the appropriate tax officer held that for the purpose of computation of capital the proposed dividend could not be treated as reserve or surplus. It would be appropriate to set out the relevant portion of the order of the ITO. In the order he computed the surtax as follows : "Surtax assessment is computed as below:- JUDGEMENT_374_ITR141_1983Html1.htm;