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TMI Blog1998 (1) TMI 405X X X X Extracts X X X X X X X X Extracts X X X X ..... 63, thereby attracting the provisions of clause (i)( c) of the second proviso and the income-tax authorities were, therefore, right in reducing the rebate in the manner in which they did for the assessment year 1964-65. - CIVIL APPEAL NOS. 2941-42 OF 1985 - - - Dated:- 21-1-1998 - B.N. KIRPAL AND S.P. KURDUKAR, JJ. S. Rajappa and B.K. Prasad for the Appellant. Manoj Arora, N.B. Joshi, P.H. Parekh and S. Bhartari for the Respondent. ORDER 1. The respondent is a public limited company which is running a well- known newspaper, the Indian Express and we are concerned in this case with income-tax for the assessment year 1964-65. 2. On 6-12-1962, the board of directors of the respondent-company passed a resolution whereby it decided that interim dividend should be distribut- 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... istributed 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place in the previous year relevant to the assessment year 1964-65, therefore, the rebate to that extent was rightly withdrawn.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 judgment of the High Court called for no interfer-ence as the distribution of the dividend took place pursuant to the declaration by the board of directors. 4. In order to appreciate the point in issue, it will be appropriate to refer to the relevant provision. The Finance Act, 1964, like all other Finance Acts, inter alia, provides for the rate at which income-tax and super tax are levied. According to this Act, the rate of super tax of the whole of the total income was 55 per cent, as per paragraph D of Part II of the Finance Act. The first proviso to this contains the rebate which is allowed in computa-tion of the tax. This rebate is, however, reduced wherever the provisions of the second proviso become applicable. In the present case, second proviso clause ( i )( c ), inter alia, provides that the amount of rebate shall be reduced where the company has declared or distributed to its sharehold- ers during the previous year any dividend ... ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions of Table A. The perusal of aforesaid clauses 85 and 86 clearly brings out the distinction in the power of the company and the board of directors. It is a company which in general meeting is empowered to declare dividend. Clause 86 does not give the board of directors power to declare any dividend but only enables it to pay interim dividend to the members of the company from time to time. It is because there is a 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 the dividen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interim dividend payable on a future date, and requested the company's bankers to set apart, out of the money of the company in their hands, into a special account entitled 'Interim Dividend Account', a sum sufficient to cover the dividend, pending the company's instructions. But before the date fixed for payment, the directors resolved that pending certain litigation to which the company was a party payment of dividend be postponed. It was held by the Court that the directors had the right even after resolving to pay interim dividend to rescind the resolution and no enforceable right arose in favour of the members of the company by the declaration of interim dividend. ****** Therefore, a declaration by a company in general meeting gives rise to an enforceable obligation, but a resolution of the board of directors resolving to pay interim dividend or even resolving to declare interim dividend pursuant to the authority conferred upon them by the articles of association gives rise to no enforceable obligation against the company, because the resolution is always capable of being rescinded. Therefore, departure in the text of article 74 of the articles of associ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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