THE INDIAN TUBE COMPANY LIMITED vs THE COMMISSIONER OF INCOME TAX

The Supreme Court held that under the Companies (Profit) Sur Tax Act, 1964, the appropriation of profits by the Board of Directors for dividend payment does not constitute a reserve for capital computation. Specifically, the Court found that the amount transferred to the dividend reserve account was not a reserve as it was not set aside to meet any known liabilities or contingencies. The appeal was dismissed, affirming the High Court's decision that only Rs. 14,00,000 could be treated as a reserve for the purpose of capital computation under Rule 1 of the Second Schedule to the Sur-tax Act.