Dividend


CS Professional

Before declaration of Dividend company shall setoff losses of current financial year from free reserves. 

or previous year losses also????

I think current financial year losses only. 

Please confirm whether my understanding is correct....

Thank you
 
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Articled Assisstant

Fourth proviso to section 123(1)(b) provides that --

"no company shall declare dividend unless carried over previous losses and depreciation not provided in previous year or years are set off against profit of the company for the current year"

Earlier the same proviso was given as sub rule (5) to rule 3 of declaration and payment of dividend rules. The same was omitted from rules and inserted as proviso to section 123 (1)(b). 


So as far as I've understood the law remains same i.e. 

No company can pay dividends without setting off all previous brought forward losses and depreciation. 
 
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CS Professional

Hello Shruthi,

Thanks for replying to my query.

What you have said is correct, but here there are two cases payment of dividend out of profit and free reserves in case of no profit or inadequate profit.

In case payment of Dividend out of profit - You are correct

In case of rule 3 of Dividend - It's only mentioned that " The amount so drawn shall first be utilised to set off the losses incurred IN The Financial Year in which dividend is declared before any dividend in respect of equity shares is declared. "

It's no where mentioned pervious financial year or years.

And in section 123 it's says set off AGAINST PROFIT of the company.

Thank you.
 
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