Preference Shares
(Regulation of Dividends)
Act, 1960
[63 of 1960]
An Act to regulate
dividends on preference shares of certain companies.
BE it enacted by Parliament in the Eleventh
Year of the
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
Provided that it shall not apply to the State of
(3) Notwithstanding anything contained in sub-section (2) the
provisions of this Act shall, in their application to the Union
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 therefrom on
account of the income-tax payable by the company, or
(b) was being paid before the 1st 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 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 1st 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 1st 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 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
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).
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 purpose 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 as 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 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 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 shall 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.
[See
section 1(3)]
Modifications of
the Act in its application to
the
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) 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”, 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 form part of the preference share capital of a
company which, in respect of the 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 1st 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 1st 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 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).”
3. In section 5, sub-section (2) shall be
omitted.
4. Section 6 shall be omitted.