Companies (Transfer of Profits to Reserves) Rules, 19751 [Notification No. GSR 426(E), dated July 24, 1975]2 In exercise of the powers conferred by sub-section (2A) of section 205, read with clause (a) of sub-section (1) of section 642 of the Companies Act, 1956 (1 of 1956), the Central Government hereby makes the following Rules, namely:— 1. Short title.—These Rules may be called the Companies (Transfer of Profits to Reserves) Rules, 1975. 2. Percentage of profits to be transferred to reserves.—No dividend shall be declared or paid by a company for any financial year out of the profits of the company for that year arrived at after providing for depreciation in accordance with the provisions of sub-section (2) of section 205 of the Act, except after the transfer to the reserves of the company of a percentage of its profits for that year as specified below.— (i) where the dividend proposed exceeds 10 per cent but not 12.5 per cent of the paid up capital, the amount to be transferred to the reserves shall not be less than 2.5 per cent of the current profits; (ii) where the dividend proposed exceeds 12.5 per cent, but does no exceed 15 per cent of the paid up capital, the amount to be transferred to the reserves shall not be less than 5 per cent of the current profits; (iii) where the dividend proposed exceeds 15 per cent, but does not exceed 20 per cent of the paid up capital, the amount to be transferred to the reserves shall not be less than 7.5 per cent of the current profits; and (iv) where the dividend proposed exceeds 20 per cent of the paid up capital the amount to be transferred to reserves shall not be less than 10 per cent of the current profits. 3. Conditions governing voluntary transfer of a higher percentage.—Nothing in rule 2 shall be deemed to prohibit the voluntary transfer by a company of a percentage higher than 10 per cent of its profits to its reserves for any financial year, so however that.— (i) Where a dividend is declared,— (a) a minimum distribution sufficient for the maintenance of dividends to shareholders at a rate equal to the average of the rates at which dividends declared by it over the three years immediately preceding the financial year; or (b) in a case where bonus shares have been issued in the financial year in which the dividend is declared or in the three years immediately preceding the financial year, a minimum distribution sufficient for the maintenance of dividends to shareholders at an amount equal to the average amount (quantum) of dividend declared over the three years immediately preceding the financial year, is ensured: Provided that in a case where the net profits after tax are lower by 20 per cent, or more than the average net profits after tax of the two financial years immediately preceding, it shall not be necessary to ensure such minimum distribution. (ii) Where no dividend is declared, the amount proposed to be transferred to its reserves from the current profits shall be lower than the average amount of the dividends to the shareholders declared by it over the three years immediately preceding the financial year. 4. Penalty.—If a company fails to comply with any of the provisions contained in these Rules, the company and every officer of the company in default shall be punishable with fine which may extend to five hundred rupees, and, where the contravention is a continuing one, with a further fine which may extend to fifty rupees for every day, after the first, during which such contravention continues.
11 January 2013
Companies (Declaration of Dividend out of Reserves) Rules, 19751 [Notification No. GSR 427(E), dated July 24, 1975]2
In exercise of the powers conferred by sub-section (3) of section 205A, read with clause (a) of sub-section (1) of section 642 of the Companies Act, 1956 (1 of 1956), the Central Government hereby makes the following Rules, namely:—
1. Short title.—These Rules may be called the Companies (Declaration of Dividend out of Reserves) Rules, 1975.
2. Declaration of dividend out of reserves.—In the event of inadequacy or absence of profits in any year, dividend may be declared by a company for that year out of the accumulated profits earned by it in previous years and transferred by it to the reserves, subject to the conditions that— (i) the rate of dividend declared shall not exceed the average of the rates at which dividend was declared by it in the five years immediately preceding that year or ten per cent of its paid up capital, whichever is less; (ii) the total amount to be drawn from the accumulated profits earned in previous years and transferred to the reserves shall not exceed an amount equal to one-tenth of the sum of its paid up capital and free reserves and the amount so drawn shall first be utilised to set off the losses incurred in the financial year before any dividend in respect of preference or equity shares is declared; (iii) the balance of reserves after such drawal shall not fall below fifteen per cent of its paid up share capital; [(iv) the Forms prescribed in these rules may be filed through electronic media or through any other computer readable media as preferred under section 610A of the Companies Act, 1956; (v) the electronic form shall be authenticated by the authorized signatories using digital signatures, as defined under the Information Technology Act, 2000 (21 of 2000); (v) the Forms prescribed in these rules, when filed in physical form, may be authenticated by authorized signatory by affixing his signatures manually.]3 Explanation.—For the purposes of this rule, "profits earned by a company in previous years and transferred by it to the reserves" shall mean the total amount of net profits after tax, transferred to reserves as at the beginning of the year for which the dividend is to be declared; and in computing the said amount, the appropriations out of the amount transferred from the Development Rebate Reserve at the expiry of the period specified under the Income-tax Act, 1961 (43 of 1961) shall be included and all items of capital reserves including reserves created by revaluation of assets shall be excluded.
Can u help me with this case. If a co. has profits of Rs. 42lakhs and its wants to utilise the whole amount so what % it would require to transfer to General Reserve??
CAclubindia
