Declaration of dividend out of Accumulated profits

Others 5588 views 3 replies

Vidya

24 Points Joined May 2009

Dear members

Can anybody provide checklist in case of declaration of dividend out of accumulated profits (i.e surplus profits not transferred to reserves.)

Also pls clarify

- will the rules of declaration of dividend out of reserves apply in this case

- Should the Company transfer profit to reserves out of that accumulated previous year(s)profits as per transfer of profit to reserves rules

- will the company have to pay dividend tax out of accumulated previous year(s) profit

Thanks & Regards

Vidya

Replies (3)

I dont know about practicle approach., but as far I learned, there is not need to comply with Companies (Decleration of Dividend Out of Reserve) Rules in case of decleration of Dividend out of accumulated profits.. In that case, only Sec 205(2A) has to comply and other procedural requirement...

But in case of decleration out of RESERVE, then there is need to comply with these Rules....

So answer to your query will be as below :-

1) Can anybody provide checklist in case of declaration of dividend out of accumulated profits (i.e surplus profits not transferred to reserves.) -

- Yes, Only need is to transfer appropriate %age of Profit to Reserve as per Sec 205(2A)

2) will the rules of declaration of dividend out of reserves apply in this case -

- No. These rules are applicable only in case of Div our of RESERVE

3) Should the Company transfer profit to reserves out of that accumulated previous year(s)profits as per transfer of profit to reserves rules -

- There is no specification whether transfer has to be made out of previous year profits or Current Year Profits..., but it doesnt make any difference, becasue, both are treated as distributable profits and so no need to segrigate them..

4) will the company have to pay dividend tax out of accumulated previous year(s) profit.

- Here also, it is not spefic which profit has to be utilised for payment of Divdend Distribution tax. But also it doesnt make any difference becasue it is a below the line item and not considerable as Expenses and deducted out of Accumulated Profit (ie CY + PY)

Above are my views and all are based on provisions. I have no idea about relevent case laws.. so experts opinions are invited...

Gajendra Sethiya

Accounts Manager

21 Points Joined February 2010

I need advice on declaration of Dividend in case of Pvt Ltd Co out of accumulated profits of past years as there is No profit earned in last 4 to 5 years .What is the maximum limit of dividend that can be declared under current laws.

CS SAJU PHILIP MANALEL

Company Secretary in Practise

157 Points Joined December 2010

A leteral interpretation of Section 205 shows that the dividend can be paid out of

a) current year profit

b) out of accumulated profits of previous years remain undistributed and not earnmarked to any reserves

c) out of both (a) and (b)

d) out of Govt grants

e) out of reserves after complying with Companies (Declaration of Dividend Out of Reserve) Rules

If option (a) is chosen, the Transfer to Reserve Rules have to be complied with.

If Option (b) is chosen, then both Companies (Declaration of Dividend Out of Reserve) Rules and Transfer to reserve Rules are not required to be complied with. Only compliance is that required is to provided for depreciation for the current as well as the past years where losses had occured.My opinion is based on literal interpretaion of the words and phrases used in the Section 205 and allied Rules.

Regards

CS Saju Philip

sajuphilipcs @ yahoo.com