R.K. Abichandani, J.
1. The Income-tax Appellate Tribunal, Ahmedabad Bench 'B', has referred to us the following question is for our opinion under section 18 of the Companies (Profits) Surtax Act, 1964, read with section 256(1) of the Income-tax Act, 1961 :
For the assessment years 1965-66 and 1966-67 :
'1. Whether, on the facts and in the circumstances of the case, the amount of Rs. 1 crore standing to the credit of dividend reserve account is liable to be treated as a reserve for including the same in computing the capital base of the company?'
For the assessment year 1966-67 :
'2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal erred in law in holding that Rs. 40 lakhs provided for deferred taxation and Rs. 40 lakhs provided for debenture redemption reserve by the assessee should be treated as a reserve for the purpose of addition to the capital?'
Regarding question No. 1 :
The assessment years are 1965-66 and 1966-67. Before the Income-tax Officer, he assessee had claimed that an amount of Rs. 1 crore standing to the credit of the dividend reserve account should be treated as a reserve and as such should be included in computing the capital for determining the capital base under the rules of the said Act. The Income-tax Officer rejected he claims for both the years by observing that the impugned amount was a provision made of the liability relating to distribution of dividend and as such was not includible tin computing the capital base. In appeal, the Appellate assistant Commissioner, reversed the decision of the Income-tax Officer finding that the said amount stood to the credit of the dividend reserve account which was ultimately adjusted by transfer to general reserve account and that the assessee had maintained a separate account from which the distribution of dividend was effected. He, therefore, held that the dividend reserve was a reserve set apart for a future liability. The Tribunal upheld the decision of the Appellate Assistant Commissioner dismissing the appeal filed by the Revenue. It would be necessary to determine the nature and character of the amount to ascertain whether it is a reserve or a provision. The facts on the record of the case disclose that the dividend reserve account was treated as an equalisation reserve and further that it was ultimately transferred to the general reserve account. The material on record has also shown that the distribution of dividend from the profits has been effected from a dividend account and the dividend reserve account was not touched in any manner whatsoever. In our view, therefore, the Tribunal was right in upholding the decision of the Appellate Assistant Commissioner, holding that the amount of Rs. 1 crore standing to the credit of the dividend reserve account was to be treated as reserve for including the same in computing the capital base of the company. Question No. 1 referred to us is therefore, answered in the affirmative, in favour of the assessee and against the Revenue.
Regarding question No. 2 :
This question relates to the assessment year 1966-67 with regard to the credit of Rs. 40 lakhs in the deferred taxation account as well as Rs. 40 lakhs in the debenture redemption reserve account. The assessee had claimed that the above be treated as reserve and included in computing the capital base of the company. The Income-tax Officer had, however, treated it as provisions. In appeal, the Appellate Assistant Commissioner held that both these items were in the nature of reserve. On further appeal, the Tribunal held that the contentions of the Revenue were not tenable and these amounts were in the nature of reserve. It has come on record that these amounts were transferred to the general reserve account by the assessee and they were not utilised with a view to meet any known or anticipated liability. The character of both these accounts had remained unchanged even though they were styled as deferred taxation reserve account and debenture redemption reserve account. The material has disclosed that the character of both these accounts were in the nature of reserves and in our opinion, the Tribunal was justified in upholding the decision of the Appellate Assistant Commissioner on this count. Question No. 2 is, therefore, answered in the negative, in favour of the assessee and against the Revenue.
2. The reference stands disposed of accordingly with no order as to costs.