9911796707
TMI Blog1971 (9) TMI 4X X X X Extracts X X X X X X X X Extracts X X X X ..... f 60,000 six per cent. (free of tax) cumulative preference shares of Rs. 100 each. As the company did not make profits out of which it could distribute dividend no dividend was declared on the preference shares during the years of account ended on June 30, 1956, June 30, 1957, and June 30, 1958. During the account year ended on June 30, 1960, the company made profits. On February 9, 1960, the board of directors of the company passed the following resolution : " That dividends on 60,000 cumulative preference shares of Rs. 100 each in respect of the years ended 30th June, 1956, and 1957, remaining in arrears be paid at the rate of 6% (free of tax)........out of the profits of the current year ending 30th June, 1960." The dividends were di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -section (2) or sub-section (3), in relation to dividends declared or payable by a company on or before the 30th day of June, 1960, in respect of any previous year relevant to any assessment year prior to the assessment year 1960-61, the Income-tax Act shall have effect as if the amendments contained in section 5, section 7, section 9, section 10, section 14, section 15, section 16, and section 18 had not been made." The assessee did not deduct any tax from the dividends declared on February 9, 1960, and May 30, 1960, and paid from April 24, 1960, and June 24, 1960, onwards, respectively. In the course of the assessment for 1960-61, made on the company, the Income-tax Officer called upon the assessee to show cause why it should not be tre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntroversy centres on the true interpretation of section 19(4) of the Finance Act, 1959 (12 of 1959), as amended by the Finance Act of 1960. The assessee claimed that that section was enacted to give exemptions with regard to such dividends which were in respect of the earlier years and which were declared between the dates April 1, 1959, when the new obligation of deducting a tax at the source was imposed and June 30, 1960. According to the Tribunal, the dividends declared on February 9, 1960, and May 30, 1960, were dividends in respect of the year 1959-60 and were in respect of the previous year relevant to the assessment year 1960-61. These dividends were not entitled to any exemption under section 19(4) of the Finance Act, 1959 (12 of 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the years which had ended on June 30, 1956, June 30, 1957, and June 30, 1958. In the eye of law, the dividends, which were declared and paid in the year of account 1959-60, could only be dividends in respect of that year and they could not be dividends in respect of any earlier years in which the preference shareholders were entitled to the same but were not paid. The argument on behalf of the revenue, in other words, thus been that the so-called dividends, which were declared and paid for the three years in question, were payments only of such amounts as were due to the preference shareholders as arrears. It is not disputed that a preference shareholder is entitled to the payment of the dividend whenever the company has profits even th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the profits of one year are not sufficient to pay the dividend for that year, the deficiency accumulates as against subsequent profits and has to be paid before any dividend can be paid on the subordinate class or classes. There can be no manner of doubt that so far as company law is concerned the correct position is the one suggested on behalf of the revenue and dividend would be payable only for the year in which profit is made. That expression may not be appropriate for the deficiency which accumulates on account of non-payment of dividend in a particular year because no profits have been made by the company. But we are not concerned with the connotation of the expression "dividend" as it is understood in company law. The Finance Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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