Dipak Kumar Sen, J. - (1.) This reference arises out of the assessment of Standard Pharmaceuticals Ltd., Calcutta, the assessee, to surtax under the C. (P.) S.T. Act, 1964, in the assessment year 1964-65, the previous year relevant whereto ended on the 31st March, 1964. The item in dispute is an amount of Rs. 2,97,277. The assessee claimed this fund to be a dividend reserve and submitted that it should be included in the computation of the capital of the assessee under Rule 1(iii) of the Second Schedule to the said Act. The ITO held that this amount represented only a surplus in the profit and loss account and was not a reserve within the meaning of the said Act.
(2.) Being aggrieved, the assessee preferred an appeal. The AAC rejected the contentions of the assessee on the ground that the said amount did not represent any reserve but was only a provision for the anticipated liabilities in connection with the declaration of dividends.
(3.) The assessee appealed further to the Income-tax Appellate Tribunal. The Tribunal found that a reserve of the said amount of Rs. 2,97,277 had been created for the purpose of declaration of dividend in future. Though in the relevant year the said reserve had been transferred to the dividend account for the purpose of such declaration of dividend but at the beginning of the period the said amount was kept as a reserve. The Tribunal did not accept the contentions of the revenue that the said amount was set apart for meeting any contingent liability. It was held that the amount should be included in the computation of the capital of the company.;