Provisions for preference dividends in different.

SRINIVASAN J.

In these four tax references a common question arises, that is, as to the proper interpretation of the expression "net wealth" as defined in the Wealth-tax Act In T. C. No. 210 of 1959 relating to the assessment year 1957-58, the assessee company made a return of its wealth on the basis of its balance-sheet made up to the 30th of June, 1956. It is admitted that that date is the valuation date for the purpose of wealth-tax assessment. The assessee deducted from the total wealth two sums as below

Rs

Proposed preference dividend ... 72, 000

Proposed ordinary dividend ... 2, 40, 000

It is common ground that the directors of the company made a recommendation to the general body that the dividends should be paid as mentioned above in their report dated November 26, 1956, and that the general body, at its meeting, held on December 29, 1956, approved the balance-sheet and the directors' report and sanctioned the payment of the dividends proposed. The Income-tax Officer refused to allow the deduction of these sums as deductions properly allowable in the computation of the net wealth ; and the appeal to the Appellate Assistant Commissioner also failed, that authority taking the view that these sums did not represent debts owed by the assessee on the valuation date. This view was concurred in by the Appellate Tribunal, the Tribunal holding that, unless and until there is a declaration of dividend by the company in general body meeting, no debt can be created in favour of a shareholder. Thereafter, on the application of the assessee, the Tribunal referred the following questions for the determination of this court

"Whether the sum of Rs. 72, 000 being the proposed dividend on preference shares is deductible in computing the net wealth of the assessee company under section 2(m) of the Act on the valuation date ? "" Whether the sum of Rs. 2, 40, 000 being the proposed dividend on ordinary shares is deductible in computing the net wealth of the assessee company under section 2(m) of the Act on the valuation date ?" *

In T. C. No. 94 of 1960, the assessee is a private limited company. With reference to the accounts of the calendar year 1958, the directors recommended the payment of a dividend of Rs. 4, 00, 000 and their report was submitted to the general body on August 28, 1959. The general body at its meeting in September, 1959, accepted the recommendation and made a declaration of the dividend. In the company's assessment of wealth-tax for the assessment year 1959-60, the company claimed that it was entitled to deduct a sum of Rs. 4, 00, 000 from the assets of the company as on the valuation date, that is, December 31, 1958. That claim having been disallowed by the department and the Tribunal, the question :

"Whether the sum of Rs. 4, 00, 000 named as provision for the payment of dividend is deductible for arriving at the net wealth of the assessee for the assessment year 1959-60 ?" *

stands referred to us

T. C. Nos. 100 and 104 of 1961 :--The details relevant to these cases are almost similar to those in T. C. No. 94 of 1961. The assessments in these cases are also for the assessment year 1959-60 and the valuation date is March 31, 1959. It is the contention of the respective assessees in these two cases that provision had been made in the balance-sheet prepared as on the valuation date for the payment of dividends and that though the general body declared these dividends subsequently, these amounts are nevertheless deductible in arriving at the net wealth of the assessee. The questions referred for the decision of this court by the Tribunal on the application of the respective assessees in the two cases areT. C. No. 100 of 1961.--Whether the sum of Rs. 14, 49, 966 made as provision for the payment of dividends is deductible for arriving at the net wealth of the assessee for the assessment year 1959-60 ?

T. C. No. 104 of 1961.--Whether the sum of Rs. 1, 90, 120 made as provision for the payment of dividends is deductible