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Interim dividend from reserves?

CAN the board of directors declare interim dividend even in the absence of an explicit power to do so in the Articles? Can such dividend be declared out of reserves? -- Murli Manohar, e-mail Now that there is a special provision in the statute (Section 205(1A)) permitting boards to declare interim dividend no explicit permission from the company's articles is required. But the directors have to ensure that there are sufficient profits determined in accordance with Section 205 to declare interim dividend from. While the Companies (Declaration of Dividend out of Reserves) Rules, 1975 does not in terms rule out the possibility of declaration of interim dividend out of reserves, the stiff conditions prescribed therein for payment of dividend out of past profits should make every Board circumspect if it is toying with the idea of declaring interim dividend out of reserves. First, dividend rate for the entire year, including interim dividend, cannot exceed the average of last five years' rates or 10 per cent of the paid-up capital, whichever is less. Second, the amount drawn for this purpose from the reserves, which cannot exceed 10 per cent of the aggregate of paid-up capital and free reserves, has got to be used first for set off the current year's loss. A company should be wary of this condition in particular because if it blithely declares interim dividend first, but subsequent events, which were not anticipated, result in a loss for the financial year, the board could be guilty of flouting the rules.
Loss return

WHAT are the consequences of not filing the return of loss within the prescribed time? -- Palaniappan, e-mail A return of loss is required to be filed, in terms of Section 139(3), within the time as is prescribed for return of income under Section 139(1) July 31 or October 31 following the end of the previous year depending upon, among other things, whether he is a non-corporate or corporate assessee. Unlike Section 139(1), which uses the word shall when it calls upon assessees to file return of income, Section 139(3) uses the word may when it calls upon assessees to file return of loss. This has given rise to a view that filing of return of loss is not mandatory. This view is now not relevant for the corporate sector inasmuch as the third proviso to Section 139(1) mandates that a company shall file a return of income or loss. Even otherwise, Section 80 says that a loss not determined in pursuance of a return filed under Section 139(3), is not available for carry forward and set-off.

Thus, on a holistic reading of the law, it is clear that filing of a return of loss is imperative, as otherwise set-off of losses against future income is not possible. While this is fine, both Sections 80 and 139(3) are remiss in not mentioning unabsorbed depreciation under Section 32(2) as well as loss from house property under Section 71B, which has fortified the view that these two species of losses can be carried forward and set off even if one does not file a return of loss. The Government ought to correct this lacuna.