Levy of an extra amount of tax on the amount of dividends on equity capital declared or distributed during the previous year by certain companies - Income Tax - 631/CBDT

INSTRUCTION NO. 631/CBDT Dated : October 27, 1973 With a view to provide encouragement to the formation of capital and reserves in the corporate sector to be utilised for industrial development and growth, Finance Act, 1964 for the first time provided for fiscal discincentives by levy of an extra amount of tax on the amount of dividends on equity capital declared or distributed during the previous year by certain companies. This was continued by the Finance Acts, 1965 to 1968, though not in the same form. 2. The mode of computing the amount on which this extra levy is to be made is explained below for the A.Y's 1964-65 to 1968-69:- ASSESSMENT YEAR 1964-65: For this A.Y the additional levy of 7.5% was in the form of an extra amount of super-tax by withdrawing the rebate of supertax otherwise admissible to the company. The extra amount of super-tax leviable was normally 7.5% of the entire amount of dividend on equity capital, declared or distributed by the company during the previous year for A.Y.1964-65, exclusive of such distribution or dividend which were declared prior to the previous year relevant for A.Y.1964-65. However, a concession was provided in regard to the levy of this extra amount of super-tax on equity dividends in the case of a company which since the date of commencement of its activities declared or distributed any dividends whether on equity or preference shares capital for the first during the previous year relevant to the A.Y.1964-65, or any one of the four previous years immediately preceding such previous year. In such cases the extra amount of super-tax at 7.5% was payable only on that amount of super-tax at 7.5% was payable only on that amount of the equity dividends which was in excess of 10% of the paid up equity capital of the company. ASSESSMENT YEAR 1965-66: With effect from 1965-66, the supertax was integrated with income-tax. In view thereof, the extra levy on the excess distribution of dividend was made operative by way of withdrawal of rebate of income-tax otherwise admissible to the company. The position of the mode of levy is the same as in 1964-65 except that the period of 4 year in respect of declaration or distribution of dividends on equity or preference shares capital will be counted from A.Y.1965-66. ASSESSMENT YEARS 1966-67 AND 1967-68: The extra levy of 7.5% was made by way of income-tax and was made on so much of the total income of the company as did not exceed the relevant amount of distribution of dividends. The expression "relevant amount of distribution of dividends" means the aggregate amount of: i)that part of the amount of equity dividends declared or distributed of the companies during the previous years relevant to the A.Y's 1964-65 1965-66 w.r.t. which it was chargeable to tax at the rate of 7.5% thereof by reduction of t he rebate of tax admissible to it, respectively, under the provisions of the Finance Acts, 1964 1965, but could not be charged because of the insufficiency of the amount of such rebate; ii)the amount by which the equity dividends declared or distributed by the company during the relevant previous years on its equity capital exceeded 10% of its paid up equity capital as on the first day of the said previous year. ASSESSMENT YEAR 1968-69: For A.Y 1968-69 the extra levy of 7.5% again took the shape of income-tax and was leviable on so much of the total income as did not exceed the relevant amount of distribution of dividends by the company. The expression "relevant amount of distribution of dividends" for this year comprises; a) distributions of equity dividends during the relevant previous year in excess of 10% of the paid up capital of the company as on the first day of the year and b) excess distribution of past years on which tax at the rate of 7.5% could not be charged due to insufficiency of the total income of the company for those years. 3. The above detailed position may be brought to the notice of the assessing officers for having carefully followed in pending assessments for the relevant years.