THE COMMISSIONER OF INCOME TAX vs. M/S. EXPRESS NEWS PAPERS LTD.

CIVIL APPEAL No. 2941/1985Supreme Court[1998] 1 S.C.R. 28821 January 1998Bench: 2 JudgesAuthor: B.N. KIRPAL, S.P. KURDUKAR THE COMMISSIONER OF7 pages
AI SummaryAllowed

What were the facts?

The assessee, M/s. Express Newspapers Ltd., is a public limited company. For the assessment year 1964-65, the Income Tax Officer reduced the rebate available to the company under the Finance Act, 1964, due to the distribution of an interim dividend. The company's accounting year is the calendar year. On December 6, 1962, the Board of Directors resolved to distribute an interim dividend, payable on January 16, 1963. The company argued that the dividend was declared before the relevant previous year began, and by virtue of Explanation 3 to the Finance Act, 1964, the rebate should not be reduced. The High Court, however, held that the resolution by the Board constituted a declaration, making Explanation 3 applicable and allowing the rebate reduction. The revenue appealed this decision.

What did the Supreme Court hold?

The Tribunal held that the High Court erred in its conclusion. It clarified that under Section 205 of the Companies Act, 1956, a dividend is declared by the company in a general meeting. While Table A of the Companies Act provides for interim dividends payable by the Board of Directors, a mere resolution of the Board to pay an interim dividend does not create an enforceable debt or a vested right in the shareholders. Unlike a dividend declared in a general meeting, the Board's resolution to pay interim dividend can be rescinded before payment. Therefore, the resolution of the Board of Directors on December 6, 1962, cannot be construed as a 'declaration of dividend' by the company. The relevant factor for attracting the provisions of Clause (c) of proviso 2(i) of the Finance Act, 1964, is the distribution of the dividend. Since the interim dividend was distributed in January 1963, which falls within the previous year relevant to the assessment year 1964-65, the Income Tax authorities were correct in reducing the rebate. The appeals are allowed, and the High Court's judgment is set aside.

What were the issues?

1. Whether the resolution passed by the Board of Directors on December 6, 1962, to pay an interim dividend, payable on January 16, 1963, constitutes a 'declaration of dividend' by the company for the purpose of withdrawing the rebate admissible under the Finance Act, 1964, specifically under sub-clause (c) of clause (i) of the second proviso read with Explanation 3. Assessee's contention: The dividend was declared on December 6, 1962, prior to the commencement of the relevant previous year, and payment was made in the subsequent previous year. Therefore, Explanation 3 to the Finance Act, 1964, should apply, preventing the reduction of the rebate. Revenue's contention: The resolution of the Board of Directors does not amount to a 'declaration of dividend' as understood under the Companies Act. What is relevant is the date of distribution, which occurred in the previous year relevant to the assessment year 1964-65. Consequently, the rebate was rightly withdrawn to the extent of the distributed interim dividend.

Which sections of the Income-tax Act were involved?

Section 205,Section 86

AI-generated summary — verify with the full judgment below

A THE COMMISSIONER OF INCOME TAX v. M/S. EXPRESS NEWS PAPERS LTD. JANUARY 21, 1998 B [B.N. KIRPAL AND S.P. KURDUKAR, JJ.] Income Tax Act, 1961/Finance Act, 1964 .

Interim dividend-Nature of-Declaration of interim dividend by Board C of Directors on 6. 12. I 962 to be payable on I 6. I. I 963-Accounting year of Company being calendar year-Income Tax Officer reduced the rebate for the assessment year 1964-65 to the extent of interim dividend-Held, provisions of clause (c) of proviso 2(1) attracted-Income tax authorities were right in reducing the rebate for the assessment,year 1964-65-lnterim dividend cannot D be construed as meaning declaration of dividend by Company-Nature of the interim dividend is such that it gives ntJ right to shareholders to receive it merely on passing of resolution by Board of Directors whereas on a dividend being declared by the Company in General meeting, a vested right accrues to shareholders. E J. Dalmia v. Commissioner of Income Tax, Delhi, 53 I.T.R. 83, relied on.

Companies Act, 1956 S. 205, Table A, Clauses 85 and 86-Declaration of interim dividend by Board of Directors on 6. I 2.1962 payable on I 6. I .1963-Accounting year F of

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