Dividends ‑ Declaration of ‑ Transfer to reserves of certain percentage of profits ‑ Queries arising from the Companies (Transfer of Profits to Reserves) Rules, 1975 and the Companies (Declaration of Dividend out of Reserves) Rules, 1975 answered - Companies Law - Circular: No. 20/76

Circular: No. 20/76 [5/10/76 ‑ CL ‑ XIV and 1/ 1/76 ‑ CL-V], dated 26 ‑ 7-1976. Subject:- Dividends ‑ Declaration of ‑ Transfer to reserves of certain percentage of profits ‑ Queries arising from the Companies (Transfer of Profits to Reserves) Rules, 1975 and the Companies (Declaration of Dividend out of Reserves) Rules, 1975 answered As question has been raised as to how rule 3 of the Transfer of Profits to Reserves Rules (as amended by the Amendment Rules, 1976) would be applied in the case of a newly incorporated company in which case no dividends would have been declared over the three years immediately preceding the financial year. The Department is of the view that in such a case rule 3 would not be applicable. Such a company would, therefore, be governed by the provisions contained in rule 2. In other words, the company is prohibited from transferring more than 10 per cent of its profits to its reserves.