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Query regarding interim dividend

PORSELVI (Accountant) (78 Points)

14 February 2013

Dear Professionals,

I have a doubt regarding issuing Interim Dividend. A Private Limited company is making loss for the last two years. But is has Accumulated profit and General Reserves. Can it issue interim dividend for the Current Year.??

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Dhawal Mohnot (Practicing) (449 Points)
Replied 14 February 2013

Yes. Refer the transcriptt of the rule below.

Companies (Declaration of Dividend out of Reserves) Rules, 1975

[GSR No. 427(E), dated July 24, 1975]

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 :-

Short title.-

These rules may be called the Companies (Declaration of Dividend out of Reserves) Rules, 1975.

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 the 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 account 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 lossesincurred in the financial year before any dividend in respect of preference or equity shares is declared ; and

(iii)

the balance of reserves after such drawal shall not fall below fifteen per cent of its paid-up share capital.

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