Law:

Section:

First Schedule to Finance Act, 1968 - Additional tax on dividend declared or K distributed by company - Whether interim dividend could be treated as 'dividend declared or distributed by the company' and, accordingly, could be clubbed with final dividend in computation for purposes of additional tax under Explanation 1(b) of paragraph F of the First Schedule - Held, no Words and phrases - 'Declared or distributed by the company' occurring in Explanation 1(b) of paragraph F of the First Schedule to the Finance Act, 1968 Facts After the declaration of the dividend at its annual general meeting, the assessee's directors at a board meeting exercised powers conferred upon them and decided to pay an interim dividend in respect of the profits earned in 1967. The ITO applied Explanation 1( b) of Paragraph F of the First Schedule to the Finance Act, 1968, and while calculating the total dividend declared during the relevant previous year clubbed the interim dividend with the final dividend and charged additional tax thereon. The Tribunal held that the interim dividend could not be said to have been declared by the assessee and, consequently, it could not be clubbed with the final dividend for the purposes of applying the aforesaid provisions. On reference, the department contended that the words 'declared or distributed by the company' in Explanation 1( b) of Paragraph F, encompassed the entirety of the dividend, i.e., interim dividend clubbed with the final dividend. Held In J. Dalmia v. CIT [1964] 53 ITR 83, the Supreme Court held that for paying interim dividend, a resolution of the company is not requi- red; the directors are authorised by the articles of association to pay the said amount which they think proper having regard to their esti- mate of profits made by the company. On payment, the interim divi- dend becomes the property of the shareholders, but a mere resolution of the directors resolving to pay a certain amount as interim divi- dend does not create a debt enforceable against the company, for it is always open to the directors to rescind the resolution before payment of the interim dividend. Therefore, interim dividend declared by a resolution of the…

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