03 February 2022
Under section 123(1) 4 proviso it States that company shall not declare dividend if the carried over losses and depreciation has been set off with the profit of the current year ok So i want to ask that it states against profit of current year ok now if I don't have profit in current year and i am declaring dividend as per 3 proviso read with rule3 which provides for set off that year loss not depreciation in which dividend is declared not the previous year depreciation and losses so if I declare dividend as per 3 proviso did I have to setoff previous years losses or depreciation kindly express your suggestion and views.
06 July 2024
Under Section 123(1) of the Companies Act, 2013, companies are generally prohibited from declaring dividends if they have carried forward losses or if the dividend exceeds the amount recommended by the board. Here’s how the provisions typically work:
1. **Current Year Profit**: The first proviso to Section 123(1) states that a company cannot declare a dividend out of its profits for the current financial year if it has carried forward losses.
2. **Setoff of Losses and Depreciation**: The fourth proviso to Section 123(1) allows for the setoff of current year profits against both current and previous years’ losses and depreciation. This means that if a company has profits in the current year, it can set off these profits against both current year losses and any carry-forward losses or depreciation from previous years.
3. **Dividend Declaration**: The third proviso to Section 123(1) clarifies that when a company declares a dividend, it can set off current year losses against current year profits for the purpose of determining the amount available for dividend distribution. This proviso does not allow for the setoff of previous year's losses or depreciation against current year profits for dividend declaration.
**Your Specific Query:**
- **No Profit in Current Year**: If your company does not have any profit in the current financial year and you declare a dividend under the third proviso read with Rule 3, you are allowed to set off the current year losses against the current year profits for the purpose of declaring dividend. However, you cannot set off previous year's losses or depreciation against current year profits for dividend distribution.
- **Treatment of Previous Year’s Losses or Depreciation**: If there are losses or depreciation from previous years that were carried forward and have not been set off against current year profits, these cannot be used to reduce the current year’s losses for the purpose of dividend declaration.
**Conclusion:** When declaring a dividend, ensure compliance with Section 123(1) and the relevant provisos. If there are no profits in the current year, you cannot declare a dividend out of such profits. Any losses from previous years cannot be set off against current year profits for the purpose of dividend distribution unless specifically allowed by the law. It’s advisable to consult with a qualified legal or financial advisor for precise guidance tailored to your company's specific situation and compliance requirements.
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