Appendix 92
THE PREFERENCE SHARES (REGULATION OF DIVIDENDS) ACT, 1960 (60 of 1960)
[28th December, 1960]
An Act to regulate dividends
on preference shares of certain companies.
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.
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) of
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 a
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 1st April, 1960)
(a) is specified to be free of income‑tax
and no deduction is made there from on account of the income‑tax payable
by the company, or
(b) was
being paid before the lst April, 1960, without any deduction there from 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 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 1st April 1960
(a) is specified to be subject to income‑tax
and a deduction is made there from on account of the income‑tax payable
by the company, or
(b) was being paid before the 1st April, 1960, subject to a deduction there
from 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 1st April, 1960 declared,
(a) after the 31st March, 1959, and before
the 1st 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 purposes 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 1st 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 a deduction is made there from on account of the income‑tax payable
by the company, or
(b) is being paid subject to a deduction
there from 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 provisions 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 section 3 or section 4 shall apply to such part of any dividend on preference shares
as is referred to in clause (i) 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.