JUDGMENT - Mrs. SUJATA MANOHAR, J. :---I.T.R. No. 223 of 1978 :

This reference pertains to assessment years 1973-74 and 1974-75. The first dates of the previous years are 1-10-1971 and 1-10-1972 respectively. For the purposes of capital computation under the Companies (Profits) Sur-tax Act, 1964 the capital has to be computed as on the first day of the previous year relevant to the assessment year.

2. The Directors of the assessee Company in their reports dated 25-1-1972 and 20-1-1973 recommended equity dividends of Rs. 5,40,000/- and Rs. 6,30,000/- respectively from out of the profits of the years ending 30-9-1971 and 30-9-1972. These were approved by the share-holders in the Annual General Meeting held on 17-3-1972 and 15-3-1973 respectively.

3. It was contenced by the assessee that the recommendation for the declaration of dividend was not done on the first day of the previous year much less was there any declaration of dividend on that date and hence the general reserves cannot be reduced by the quantum of dividends which have been subsequently declared. The Tribunal has held that there was no liability to pay dividends on the first day of the previous year. The recommendation by the Directors was made after the first date of the previous year and hence the Sur-tax Officer was wrong when he held that the dividend declared out of general reserve, which was not a free reserve to the extent of the dividend declared, is deductible from the capital of the Company. From this decision of the Tribunal, the following question of law has been referred to us under section 256(1) of the Income-tax Act :

"Whether on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that sum of Rs. 5,40,000/- (1973-74)/Rs. 6,30,000/- (1974-75), being the amount of Dividend declared from the General Reserve was includible in computing the capital for the purpose of statutory deduction under the Companies (Profits) Sur-tax Act, 1964?"

I.T.R. No. 335 of 1978 :

4. This reference pertains to the assessement years 1070-71 and 1971-72, the respective previous years ending on 30-9-1969 and 30-9-1970. The capital which is, therefore, required to be determined for the purposes of assessment of sur-tax for these assessment years has to be determined as on 1-10-1968 and 1-10-1969. The credit balance outstanding in the general reserve account on 1-10-1968 and 1-10-1969 was Rs. 40,27,470/- and Rs. 42,81,971/- respectively. This credit balance was inclusive of profits of the immediately preceding year appropriated and transferred to the General Reserve Account. The Company declared dividends out of the General Reserve as follows :

For 1967-68 on 1-10-1968 .. .. Rs. 4,50,000/-

For 1968-69 on 1-10-1969 .. .. Rs. 5,40,000/-

5. The Tribunal has held that the general reserves on the first day of the accounting period have to be reduced by the amount of dividends so declared. Hence, the following question has been referred to us under section 256(1) of the Income-tax Act :

"Whether on the facts and in the circumstances of the case, the amounts of proposed dividends have to be excluded from the General Reserve for the purpose of assessments to Sur-tax for assessment years 1970-71 and 1971-72 respectively?"

I.T.R. No. 230 of 1978 :

6. In this reference the assessment years are 1971-72, 1972-73 and 1973-74. The relevant previous year for the assessment year 1971-72 is from 1-4-1970 to 31-12-1970. The relevant previous year for the assessment year 1972-73 is the calender year 1971 while the relevant previous year for the assessment year 1973-74 is the calender year 1972. For the purposes of capital computation under the Companies (Profits) Sur-tax Act, 1964, the following facts are relevant. The assessee had shown general reserves as on 1-4-1970 as Rs. 53,50,000/-. The assessee had not created a dividend reserve. The Directors recommended a dividend of Rs. 13,20,000/-, which if approved by the shareholders was to be paid out of the general re

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