TaxTMI 
TaxTMI 
1998 (1) TMI 405
X X X X Extracts X X X X
X X X X Extracts X X X X
....t- ed amongst the shareholders. The resolution further provided that this dividend would be payable on 16-1-1963. It may here be noticed that the accounting year of the respondent-company is the calendar year. The resolution which was passed on 6-12-1962, therefore, was in the previous year relevant to the assessment year 1963-64 whereby the payment was made to the shareholders in the following year relevant to the assessment year 1964-65. In determining the amount of tax which was payable by the company for the assessment year 1964-65, the ITO came to the conclusion that the rebate which was available to the company under the Finance Act, 1964 had to be reduced to the extent of the interim dividend paid to its shareholders in January 1963....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e rebate could not be reduced. In this appeal, it has been contended by the learned counsel for the appellant that the High Court erred in coming to the conclusion that there was any declaration of any dividend, as under-stood under the Companies Act, 1956, by the company. According to the learned counsel, the resolution of the board of directors dated 6-12-1962 cannot be regarded as a declaration of dividend by the company and, therefore, what was relevant is to see the date when the interim dividend was distributed and as the distribution took place in the previous year relevant to the assessment year 1964-65, therefore, the rebate to that extent was rightly withdrawn. On behalf of the respondent, however, it was submitted that the judgme....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vidends." On a careful examination of the aforesaid provision, it appears to us that the rebate given by the first proviso can be reduced if dividend has been declared or distributed by the company to its shareholders. Two expres-sions are used, namely, 'declared' and 'distributed'. The learned counsel for the respondent is right in construing Explanation 3 to mean that if the declaration of the dividend is in the year prior to the commencement of the relevant previous year but the distribution is in the relevant previous year, then no rebate would be reduced in the year in which distribution takes place. In other words, the rebate, as far as Explanation 3 is con-cerned, can be reduced only if the declaration and the distri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....difference in the power which is exercised by the company in general meeting, vis-a-vis, the one exercised by the board of directors while deciding to pay an interim dividend, that in clause (i)( c) of the second proviso in the Finance Act, the expression used is "declared or distributed to its shareholders". This clearly postulates a situation where there may be distribution of dividend without its declaration. This can be where the board of directors, and not the company in general meeting, decides to pay interim dividend in which case the rebate will be withdrawn in the year of distribution of the interim dividend, there being no declara-tion by the company for the payment thereof. 7. The difference in the nature of interim dividend and....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e articles of association in the directors. For paying interim dividend, a resolution of the company is not required: if the directors are authorised by the articles of association, they may pay such amount as they think proper, having regard to their estimate of the profits made by the company. Interim dividend is, therefore, paid pursuant to the resolution of the directors on some day between the ordinary general meetings of the company. On payment, undoubtedly interim dividend becomes the property of the shareholder. But a mere resolution of the directors resolving to pay a certain amount as interim dividend does not create a debt enforceable against the company, for it is always open to the directors to rescind the resolution before pay....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s, makes no real difference in the true character of the right arising in favour of the members of the company on the execution of the power. The directors, by the articles of association, are entrusted with the administration of the affairs of a company; it is open to them if so authorised to declare interim dividend. They may, but are not bound to, pay interim dividend even if the finances of the company justify such payment. Even if the directors have resolved to pay interim dividend, they may before payment rescind the resolution." (p. 87) The aforesaid observation clearly supports the view which we have taken, namely, that the nature of the interim dividend is such that it gives no right to the shareholders to receive it merely on the....