[Act No. 60 of Year
1960]
An
Act to regulate dividends on preference shares of certain
companies
Comment: This Act seeks to regulate dividends on preference shares of certain companies as specified.
Be it enacted by Parliament in the Eleventh Year of the Republic of India as follows: -
1. Short title and
commencement
(1) This Act may be called the Preference Shares (Regulation
of Dividends) Act, 1960.
(2) It extends to the whole of
India:
PROVIDED that it shall
not apply to the State of Jammu and Kashmir except to the extent to
which the provisions of this Act relate to the regulation of
dividends on preference shares of banking and insurance companies
and financial corporations.
(3) Notwithstanding anything
contained in sub-section (2), the provisions of this Act shall, in
their application to the Union territory of Pondicherry, have effect
subject to the modifications specified in the
Schedule.
2.
Definitions
In this Act, unless the context otherwise
requires,-
(a) "Companies Act" means the Companies Act, 1956 (1 of
1956);
(b) "company" means an Indian company as defined in clause
(26) of section 2 of the Income Tax Act, 1961 (43 of 1961), and
includes a company, referred to in sub-clause (ii), clause (17), of
the said section which has made arrangements for the declaration and
payment of dividends within India in accordance with the rules made
under the said Act;
(c) "preference share" means a
share which carries, as respects dividends, a preferential right to
be paid as fixed amount or an amount calculated at a fixed
rate;
(d)
"previous year" has the same meaning as in the Income Tax Act, 1961
(43 of 1961);
(e) "stipulated dividend" in relation to a preference share,
means the fixed amount or the amount calculated at a fixed rate
which the holder of such share has a preferential right to be paid
as dividend;
(f) all other words and expressions used but not defined in
this Act and defined in the Companies Act shall have the meanings
respectively assigned to them in that Act.
3. Regulation of
dividends on preference shares in certain cases
(1) Where the
stipulated dividend in respect of a preference share of a company
issued and subscribed for before the lst April, 1960-
(a) is specified to be
free of income-tax and no deduction is made therefrom on account of
the income-tax payable by the company; or
(b) was being paid before the lst
April, 1960, without any deduction therefrom on account of the
income-tax payable by the company, notwithstanding the absence of
any specification that the dividend would be free of
income-tax,
every such share shall, as respects dividends declared after
the commencement of this Act, carry a preferential right to be paid
without any deduction aforesaid such amount as would exceed the
stipulated dividend by thirty per cent thereof.
(2) Where the
stipulated dividend in respect of a preference share of a company
issued and subscribed for after the 31st March, 1959, and before the
1st of April, 1960, is free of income-tax and the company, besides
paying the stipulated dividend to the holder of such share pays to
government on his behalf any sum on account of income-tax payable
thereon, then every such share shall, as respects dividends declared
after the commencement of this Act, carry a preferential right to be
paid free of income-tax such amount as together with the sum
aforesaid would exceed the stipulated dividend by thirty per cent
thereof.
(3) Where the stipulated dividend in respect of a preference
share of a company issued and subscribed for before the lst April,
1960-
(a)
is specified to be subject to income-tax and a deduction is made
therefrom on account of the income-tax payable by the company;
or
(b)
was being paid before the lst April, 1960, subject to a deduction
therefrom on account of the income-tax payable by the company,
notwithstanding the absence of any specification that the dividend
would be subject to income-tax, then every such share shall, as
respects dividends declared after the commencement of this Act,
carry a preferential right to be paid subject to the deduction
aforesaid such amount as would exceed the stipulated dividend by
eleven per cent thereof.
(4) Where a company has, in
relation to a preference share issued and subscribed for before the
lst April, 1960, declared-
(a) after the 31st March, 1959,
and before the lst July, 1960, a dividend in respect of a previous
year relevant to its assessment year 1960-61 or a subsequent
assessment year, or
(b) after the 30th June, 1960,
and before the commencement of this Act, a dividend in respect of
any previous year.
it shall declare, in respect of
the said previous year, an additional dividend of such amount as,
together with the dividend already declared, would exceed the
stipulated dividend-
(i) by thirty per cent of the
stipulated dividend in the cases referred to in sub-section (1),
or
(ii)
by eleven per cent of the stipulated dividend in the cases referred
to in sub-section (3).
(5) For the purpose of
sub-section (1), sub-section (3) and sub-section (4), any reference
therein to the stipulated dividend shall, in respect of a preference
share issued and subscribed for on or before the 31st March, 1959,
be construed as a reference to the stipulated dividend as on that
day.
(6)
For the removal of doubts, it is hereby declared that any reference
in this section and section 4A to deduction made from a dividend "on
account of the income-tax payable by the company" does not include
any amount deducted by the company from that dividend under section
194 of the Income Tax Act, 1961 (43 of 1961).
4. Special provisions in
relation to companies where a portion of their income is not
chargeable to income-tax
Where any preference share of a
company has been issued and subscribed for before the lst April,
1960, and any portion of the profits and gains of the company in
respect of the relevant period is exempt from income-tax under the
Income-tax Act, 1961 (43 of 1961), by reason of such portion being
agricultural income, then, for the purpose of the increase in the
dividend in relation to any such preference share under the
provisions of section 3, the increase of thirty per cent, or eleven
per cent referred to therein shall be taken to be such proportion of
the said thirty per cent or eleven per cent, as the case may be, as
the total amount of the profits and gains of the company excluding
the portion of the profits and gains which is so exempt in respect
of the relevant period bears to the total amount of the profits and
gains thereof in respect of that period.
Explanation : For the
purposes of this section, "relevant period", in relation to the
profits and gains of a company, shall mean--
(a) the previous years relevant
to such of the three assessment years as immediately precede the
assessment year ending on the 31st March, 1961, and in each of which
the net result of the computation of profits and gains of the
company has not been a loss or where there are only two such years,
such two years, or where there is only one such year, such one year;
or
(b) in
any case where clause (a) is not applicable the previous year
relevant to the assessment year ending on the 31st March, 1961, or a
subsequent assessment year immediately following thereafter in which
the net result of the computation of profits and gains has not been
a loss.
4A. Deduction of income-tax
Where the stipulated dividend in
respect of a preference share of a company-
(a) is specified to be subject to
income-tax and deduction is made therefrom on account of the
income-tax payable by the company, or
(b) is being paid subject to a
deduction therefrom on account of the income-tax payable by the
company, notwithstanding the absence of any specification that the
dividend would be subject to income-tax. such deduction made by the
company from any dividend declared after the 28th day of February,
1966, shall in no case exceed twenty seven and a half per cent of
the aggregate Of-
(i) the stipulated dividend, and
(ii) an amount equal to eleven
per cent of the stipulated dividend as specified in sub-section (3)
of section 3.
5. Overriding effect of
Act
(1)
The provision of this Act shall have effect notwithstanding anything
to the contrary contained in any law for the time being in force or
in the memorandum or articles of a company or in any agreement
between the company and its shareholders or in any resolution passed
by the company in a general meeting or by its Board of
directors.
(2) Notwithstanding anything contained in this Act, a
company may, in the manner provided in section 106 of the Companies
Act, increase the amount of dividend in respect of a preference
share beyond the limit specified in section 3 or section 4 of this
Act.
6. Act not to apply to
participating preference dividends
Nothing contained in sections 3
or 4 shall apply to such part of any dividends on preference shares
as is referred to in clause (1) of the Explanation to sub-section
(1) of section 85 of the Companies Act.
7. Power to make
rules
(1)
The Central Government may, by notification in the Official Gazette,
make rules for carrying out the purposes of this Act.
(2) Every rule made
under this section shall be laid as soon as may be after it is made,
before each House of Parliament while it is in session for a total
period of thirty days which may be comprised in one session or in
two successive sessions, and if, before the expiry of the session in
which it is so laid or the session immediately following, both
Houses agree in making any modification in the rule, or both Houses,
agree that the rule should not be made, the rule shall, thereafter
have effect, only in such modified form or be of no effect, as the
case may be; so, however, that any such modification or annulment
shall be without prejudice to the validity of anything previously
done under that rule.
THE SCHEDULE :
MODIFICATION OF THE ACT IN ITS APPLICATION TO THE UNION TERRITORY OF
PONDICHERRY
[See section 1(3)]
1.
Sections 3 and 4 shall
be omitted.
2.
In section 4A, for the
words, brackets, letters and figures "twenty-seven and a half per
cent of the aggregate of (i) of stipulated dividend, and (ii) an
amount equal to eleven per cent of the stipulated dividend as
specified in sub-section (3) of section 3", the following shall be
substituted, namely:-
"twenty-seven and a half per cent
of the stipulated dividend:
PROVIDED that in a case
where the preference shares in respect of which the dividend is
declared or paid from part of the preference share capital of a
company which, in respect of greater part of its total income, is
entitled to a deduction from the tax chargeable from it under the
Income Tax Act, 1961 (43 of 1961), under a notification issued by
the Central Government under section 294A of that Act, the reference
to twenty-seven and a half per cent of the stipulated dividend shall
be construed as a reference to-
(i) where the stipulated dividend
in respect of such preference share is declared or paid in respect
of the previous year relevant to the assessment year commencing on
the lst day of April, 1965, the said twenty-seven and a half per
cent as reduced by forty-five per cent thereof;
(ii) where such
dividend is declared or paid in respect of the previous year
relevant to the assessment year commencing on the lst day of April,
1956, the said twenty-seven and a half per cent, as reduced by
twenty-five per cent thereof;
(iii) where such dividend is
declared or paid in respect of the previous year relevant to the
assessment year commencing on the 1st day of April, 1967, or the 1st
day of April, 1968, or the 1st day of April, 1969, the said
twenty-seven and a half per cent as reduced by ten per cent
thereof.
Explanation : For the removal of doubts it is hereby
declared that any reference in this section to deduction made from a
dividend on account on income-tax payable by the company does not
include any amount deducted by the company from the dividend under
section 194 of the Income Tax Act, 1961 (43 of
1961)."
3.
In section 5,
sub-section (2) shall be omitted.
4.
Section 6 shall be
omitted.