The Preference Shares (Regulation of Dividend) Act, 1960 was enacted on 28th December, 1960. The Act aims to regulate dividends on preference shares of companies. The Act extends to whole of India and also to the state of Jammu and Kashmir to the extent of regulation of dividends on preference shares of banking, insurance companies and other financial corporations.
The term company under the Act shall have similar meaning as defined under section 2 clause (26) and sub clause (ii) clause 17 of Income Tax Act, 1961. The Act shall apply to all the companies established under the Companies Act, 1956.
Section 3 of the Act enumerates certain instances wherein the dividends on preferential shares shall be regulated. Dividends on preferential shares shall be regulated in three instances firstly, when shares with respect to preference shares of company are both issued and subscribed before 1st April, 1960; when shares are specified to be tax free and no deductions are made from them; when dividends on shares was paid without deductions before 1st April, 1960; when stipulated dividend of preference share of company subscribed to after 31st March, 1959 is free from income tax, secondly when the stipulated dividend with respect to preference shares of company are specified to income tax deductions; when dividend is subject to income tax and thirdly, where the company has declared its dividend, between 31st march, 1959 and 1st July, 1960 to be thirty percent and after 30th June, 1960 to be eleven percent.
When preferential shares of a company are issued and subscribed before 1st April, 1960, in this period the profits made by the company shall not be taxed. The Act shall have an overriding effect over other laws. Act shall not apply to participating preference dividends. The Central Government shall have power to make rules.
by Vibhuti Nakta.