Page 374 - DCOM301_INCOME_TAX_LAWS_I

Unit 13: Income from Other Sources

According to the definition in the Income-tax Act, ‘Dividend’ includes the following items: Notes
1. Any distribution by a company of accumulated profits, whether capitalized or not, if such
distribution entails the release by the company to its shareholders of all or any part of the
assets of the company; Current profit would be part of accumulated profits but subsidy on
Capital Account cannot be treated as accumulated profits;

2. Any distribution, by a company to its shareholders, of debentures debenture stock or
deposit certificates in any form, whether with or without interest and any distribution to
its preference shareholders of shares by way of bonus to the extent to which the company
possesses accumulated profits, whether capitalised or not;
3. Any distribution made to the shareholders of a company on its liquidation, to the extent
to which such distribution is attributable to the accumulated profits of the company
immediately before its liquidation, whether capitalized or not;

4. Any distribution to its shareholders by a company on the reduction of its share capital, to
the extent to which the company possesses accumulated profits, whether capitalised or
not;
5. Any payment made by a company, in which the public are not substantially interested of
any sum whether representing a part of the assets of the company or otherwise made after
the 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who
is the beneficial owner of shares, holding not less than ten per cent of the voting power, or
to any concern in which such shareholder is a member or a partner and in which he has a
substantial interest, or any payment by any such company on behalf of or for the benefit
of the shareholder having substantial interest in the company to the extent to which the
company possesses accumulated profits.

!
Caution Sub-section (22) to Section 2 specifically excludes the following:
1. Any distribution made by a company in accordance with (3 or (4) above in respect of
any share issued for full cash consideration in cases where the shareholder is not
entitled, in the event of liquidation, to participate in the surplus assets of the company;

2. Any distribution made in accordance with items (3) and (4) above in so far the
distribution is attributable to the capitalised profits of the company representing
bonus shares allotted to its equity shareholders after 31.3.1964 and before 1.4.1965;

3. Any advance or loan made by a company to its shareholder the said concern, i.e., a
HUF firm, an AOP or, BOI or a company in the ordinary course of its business in
cases where lending of money is a substantial part of the business of the company;
4. Any dividend paid by a company which is set off by the company against the whole
or any part of any sum previously paid by it and treated as a dividend under item (e)
above to the extent to which it is so set off;
5. Any payment made by a company on purchase of its own shares from a shareholder
in accordance with the provisions of Section 77A of the Companies Act, 1956;
6. Any distribution of shares pursuant to a demerger by the resulting company to the
shareholders of the demerged company.

The account given above represents various payments which are notionally or by fiction of law,
treated as dividend and which, in the absence of specific provision may not be chargeable to tax
as dividend income in the hands of shareholders. The distributions or payments constituting

LOVELY PROFESSIONAL UNIVERSITY 369