COMMISSIONER OF INCOME TAX Vs. GEOFFREY MANNERS AND COMPANY LIMITED

JUDGEMENT

(1.) IN this reference the following four questions are referred for our determination :

(2.) WHETHER , on the facts and in the circumstances of the case, the sum of Rs. 2,35,000 transferred to general reserve out of the profits of the year ended October 31, 1963, was includible in the computation of capital for surtax purposes as a 'reserve' as on the first day of the 'previous year' November 1, 1963, to October 31, 1964, relevant to the assessment year 1965 -66 ?

(3.) WHETHER , on the facts and in the circumstances of the case, the sum of Rs. 9,60,000 out of the dividend equalisation reserve of Rs. 13 lakhs as on November 1, 1963, was includible in the computation of capital for surtax purposes as a 'reserve' for the assessment year 1965 -66 ?' 2. Out of these four questions the first three questions are referred at the instance of the revenue while the last question is referred at the instance of the assessee. So far as the first two questions are concerned, the facts relevant thereto need not be stated as it is conceded before us that in view of decision of the Supreme Court in the case of Commissioner of Income -tax v. Mysore Electrical Industries Ltd. : [1971]80ITR566(SC) and our decision following the said Supreme Court decision in I.T. Reference No. 52 of 1969 decided on 26th /27th July, 1976 [Commissioner of Income -tax v. Otis Elevator Co. (India) Ltd. : [1977]107ITR241(Bom) ], questions Nos. 1 and 2 should be answered in the affirmative and in favour of the assessee. Questions Nos. 3 and 4 arise out of the same set of facts relevant for the assessment year 1965 -66. In terms of the directors' report dated June 19, 1964, in respect of the account for the year ended October 31, 1963, a sum of Rs. 13 lakhs was transferred to dividend equalisation reserve out of the aggregate profits of the year ended October 31, 1962. The directors in the report recommended dividend for the year ended October 31, 1963, at Rs. 3 per share subject to the deduction of tax on 3,20,000 equity shares of Rs. 10 each absorbing 9,60,000 which dividend, if approved by the shareholders at the forthcoming annual general meeting, would be paid out of the dividend equalisation reserve and no separate provision has been made therefor. In the balance -sheet as on October 31, 1963, which was put before the shareholders for their approval and adoption at the annual general meeting, the relevant entries as regards dividend reserve under the head 'reserves and surplus' are as under :