Dividend Reserve Rules

Topics: Depreciation, Company, Generally Accepted Accounting Principles Pages: 11 (3806 words) Published: September 9, 2012

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SECTION 205 DIVIDEND TO BE PAID ONLY OUT OF PROFITS Dividend declared at extraordinary general meeting of company - Whether permissible The query has been raised whether a company is prohibited from declaring a further dividend at a general meeting of a company other than the annual general meeting after a dividend had already been declared at an annual general meeting. Such a situation could arise, for example, when after declaring a dividend at an annual general meeting, the company finds that it is required to declare a further amount as dividend in order to qualify for certain benefits under the Income-tax Act. The matter has been considered in the Company Law Board which has been advised that while there is no provision in the Companies Act prohibiting the declaration of a dividend at a general meeting other than the annual general meeting of the company (vide regulation 85 of Table A of Schedule I) unless otherwise provided in the articles of association, it is beyond the powers of a company to declare a further dividend after the declaration of dividend at the annual general meeting. In this connection attention is invited of all concerned, to the decision of the Calcutta High Court in the matter of Biswa Nath Pd. Khaitan v. New Central Jute Mills Ltd. (1961) 31 Comp. Cas. 125. Thus a company which could not declare a dividend at an annual general meeting may do so at a subsequent general meeting. On the other hand, where a company has declared a dividend at a general meeting neither the company nor its directors can declare a further dividend for the same year. * CIRCULAR NO.22[7/9/74-CL-ii], DATED 25.9.1975. Payment of interim dividend -Whether confirmation by shareholders has to be only in annual general meeting. Approval of dividend is the privilege of the general meeting and the board can pay interim dividend if so authorised by the articles of association subject to the regularisation of the interim dividend by the company in general meeting. The general meeting for this purpose can be annual general meeting only, for the profit for the financial year would not otherwise be known. * LETTER NO. 8/13(205A)/79-CL-V, DATED 18.7.1981. Clarifications on the provisions relating to depreciation under the Companies Act, 1956, as amended by the Companies (Amendment) Act, 1988. This Department has been receiving queries from different quarters on the subject mentioned above, from time to time, and, accordingly, the following clarifications are issued:1) Date on which the new provisions relating to depreciation become effective: The Companies (Amendment) Act, 1988, specifically provides that Schedule XIV shall be deemed to have come into force on 2nd April, 1987. The amended provisions of sections 205 and 350 of the Act have come into force on 15th June, 1988, by virtue of the notification issued by this Department. A question arises, therefore, whether depreciation can be charged on assets on the basis of the rates provided in Schedule XIV for accounting years ending between 2nd April, 1987, and 14th June, 1988. In view of the intention of the Legislature behind the amendments in sections 205 and 350 of the Act, the amended provisions have come into force with effect from 2nd April 1987. 2) Recomputation of specified period: It is stated that in 1986, the Department had issued a circular stating that specified period once determined may not be recomputed. Accordingly the Department had advised the companies that it was open to them not to recompute the specified period even when there is a change in the rates of depreciation later on (as against the




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position of the Department's earlier circular of 1985 on the subject). It is argued that as far as the existing assets are concerned, the companies can follow either of the two circulars. An option under the 1986 circular would thus be...
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