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TMI Blog1993 (4) TMI 47X X X X Extracts X X X X X X X X Extracts X X X X ..... only a proposal and the dividend was declared in the annual general meeting held on July 22, 1978, which was beyond the 12-month period from the end of the accounting period ? 2. Whether, on the facts and in the circumstances of the case, the Tribunal acted in law in holding that the provisions of section 104 were applicable ?" The dispute relates to the assessment year 1977-78. At the relevant time, the accounting year of the assessee ended with the calendar year. At a meeting of the board of directors held on December 12, 1977, it was resolved that the dividend for the years 1969 to 1971 on the paid-up six per cent. preference share capital of the company be declared, the amount being dividend at the rate of six per cent. on Rs. 2,65, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of section 104 of the Income-tax Act, 1961, which alone is relevant for the purpose of this case reads as follows : " 104. Income-tax on undistributed income of certain companies. (1) Subject to the provisions of this section and of sections 105, 106, 107 and 107A, where the Income-tax Officer is satisfied that in respect of any previous year the profits and gains distributed as dividends by any company within the twelve months immediately following the expiry of that previous year are less than the statutory percentage of the distributable income of the company of that previous year, the Income-tax Officer shall make an order in writing that the company shall, apart from the sum determined as payable by it on the basis of the assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he directors cannot distribute dividends but they can only recommend to the general body of the company the quantum of dividend to be distributed. Under section 217 of the Companies Act, 1956, there shall be attached to every balance-sheet laid before a company in general meeting a report by its board of directors with respect to, inter alia, the amount, if any, which it recommends to be paid by way of dividend. Till the company in its general body meeting accepts the recommendation and declares the dividend, the report of the directors in that regard is only a recommendation which may be withdrawn or modified, as the case may be. As on the valuation date nothing further happened than a mere recommendation by the directors as to the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oard at any time before payment to review its decision and resolve not to pay the dividend. The directors can before or after the time of such resolution decide that the dividend shall be paid on some stipulated future date. If the time for payment is so specified, a shareholder has no enforceable right to demand payment prior to the stipulated date. A general meeting cannot pass a resolution for payment of interim dividend. But the general meeting may override the decision of the board to pay interim dividend. The general body can rescind the declaration of dividend before payment has been made. Interim dividend declared by the board of directors does not create any liability and can be revoked by the directors as also by the general meeti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t power to pay interim dividend is usually vested by the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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