1. T.L. VISWANATHA IYER, J.---The question of which the Revenue seeks reference is related to the point whether the amount represented by dividends proposed to be declared is liable to be deducted in the computation of the capital employed for purposes of section 80-J(1-A) of the Income Tax Act, 1961, as a debt owed. The Commissioner (Appeals) held that the amount was not a debt owed on the relevant date in support of which he relied on the decision of the Supreme Court in Kesoram Industries and Cotton Mills Ltd. v. CWT (1966) 59 ITR 767. In that case, it was held that in computing the net wealth of an assessee for the purpose of assessment to wealth tax the dividend proposed to be declared for the year was not a debt owed on the valuation date and therefore not deductible from the total assets. The Supreme Court stated that until the company in its general body meeting accepted the recommendation of the directors and declared the dividend, the report of the directors proposing a dividend was only a recommendation which might be withdrawn or modified. As on the valuation date nothing had happened beyond a mere recommendation by the directors as to the amount that might be distributed as dividend and, therefore, there was no debt owed by the company to the shareholders on that date. The proposed dividend was not thus deductible in computing the net wealth of the assessee-company.
2. The ratio of this decision of the Supreme Court was applied to the case by the Tribunal who affirmed the decision of the Commissioner (Appeals). We are at one with the Tribunal on this point and we feel that having regard to the decision of the Supreme Court the answer to the question raised is self-evident and, therefore, no question of law is liable to be referred to this Court. We must note here that section 80-J provides for a deduction from the profits and gains of a newly established industrial undertaking of certain amounts related to the capital employed in the . undertaking, what is capital employed being defined in subsection (I-A). The said subsection requires the capital employed to be computed in accordance with clauses (II) to (IV) thereof.
3. Clause (II) which is relevant provides for the ascertainment of the value of the assets as on the first day of the computation period. "Computation period" is defined in Explanation 2 as the period for which profits and gains of the industrial undertaking are computed under sections 28 to 43-A.
4. Clause (III) provides for the deductions to be made from the value of the assets determined under clause (II). One of the items to be deducted is "debts owed" as on the first day of the computation period. The value of the assets and the deductions (including debts owed) are thus crystallised with reference to the first day of the computation period. There is no dispute that as on that date, there was only a recommendation by the directors to declare a dividend. The actual declaration was yet to follow after the decision of the general body at the annual general meeting. The proposed dividend was not a debt owed on the first day of the computation date, on the principles laid down by the Supreme Court in Kesoram Industries and Cotton Mills Ltd. v. CWT (1966) 59 ITR
767. The amount of the proposed dividend was not therefore liable to be deducted from the aggregate value of the assets for determining the capital employed for the purpose of subsection
(1) of section 80-J. The decision of the Tribunal is, therefore, right. No other conclusion is possible having regard to the statutory provisions, and the decision of the Supreme Court in Kesoram Industries and Cotton Mills Ltd. v. CWT (1966) 59 ITR 767 which, though rendered in a wealth tax case, is equally applicable to section 80-J.
5. No referable question, therefore, arises. These petitions are, therefore, dismissed.