(1) This Act may be called the Preference Shares (Regulation of Dividends) Act, 1960.

(2) It extends to the whole of India:

PROVIDED that it shall not apply to the State of Jammu and Kashmir except to the extent to which the provisions of this Act relate to the regulation of dividends on preference shares of banking and insurance companies and financial corporations.

(3) Notwithstanding anything contained in sub-section (2), the provisions of this Act shall, in their application to the Union territory of Pondicherry, have effect subject to the modifications specified in the Schedule.

In this Act, unless the context otherwise requires,-

(a) "Companies Act" means the Companies Act, 1956 (1 of 1956);

(b) "company" means an Indian company as defined in clause (26) of section 2 of the Income Tax Act, 1961 (43 of 1961), and includes a company, referred to in sub-clause (ii), clause (17), of the said section which has made arrangements for the declaration and payment of dividends within India in accordance with the rules made under the said Act;

(c) "preference share" means a share which carries, as respects dividends, a preferential right to be paid as fixed amount or an amount calculated at a fixed rate;

(d) "previous year" has the same meaning as in the Income Tax Act, 1961 (43 of 1961);

(e) "stipulated dividend" in relation to a preference share, means the fixed amount or the amount calculated at a fixed rate which the holder of such share has a preferential right to be paid as dividend;

(f) all other words and expressions used but not defined in this Act and defined in the Companies Act shall have the meanings respectively assigned to them in that Act.

(1) Where the stipulated dividend in respect of a preference share of a company issued and subscribed for before the lst April, 1960-

(a) is specified to be free of income-tax and no deduction is made there from on account of the income-tax payable by the company; or

(b) was being paid before the lst April, 1960, without any deduction there from on account of the income-tax payable by the company, notwithstanding the absence of any specification that the dividend would be free of income-tax, every such share shall, as respects dividends declared after the commencement of this Act, carry a preferential right to be paid without any deduction aforesaid such amount as would exceed the stipulated dividend by thirty per cent thereof.

(2) Where the stipulated dividend in respect of a preference share of a company issued and subscribed for after the 31st March, 1959, and before the 1st of April, 1960, is free of income-tax and the company, besides paying the stipulated dividend to the holder of such share pays to government on his behalf any sum on account of income-tax payable thereon, then every such share shall, as respects dividends declared after the commencement of this Act, carry a preferential right to be paid free of income-tax such amount as together with the sum aforesaid would exceed the stipulated dividend by thirty per cent thereof.

(3) Where the stipulated dividend in respect of a preference share of a company issued and subscribed for before the lst April, 1960-

(a) is specified to be subject to income-tax and a deduction is made there from on account of the income-tax payable by the company; or

(b) was being paid before the lst April, 1960, subject to a deduction there from on account of the income-tax payable by the company, notwithstanding the absence of any specification that the dividend would be subject to income-tax, then every such share shall, as respects dividends declared after the commencement of this Act, carry a preferential right to be paid subject to the deduction aforesaid such amount as would exceed the stipulated dividend by eleven per cent thereof.

(4) Where a company has, in relation to a preference share issued and subscribed for before the lst April, 1960, declared-

(a) after the 31st March, 1959, and before the lst July, 1960, a dividend in respect of a previous year relevant to its assessment year 1960-61 or a subsequent assessment year, or

(b) after the 30th June, 1960, and before the commencement of this Act, a dividend in respect of any previous year.

it shall declare, in respect of the said previous year, an additional dividend of such amount as, together with the dividend already declared, would exceed the stipulated dividend-

(i) by thirty per cent of the stipulated dividend in the cases referred to in sub-section (1), or

(ii) by eleven per cent of the stipulated dividend in the cases referred to in sub-section (3).

(5) For the purpose of sub-section (1), sub-section (3) and sub-section (4), any reference therein to the stipulated dividend shall, in respect of a preference share issued and subscribed for on or before the 31st March, 1959, be construed as a reference to the stipulated dividend as on that day.

(6) For the removal of doubts, it is hereby declared that any reference in this section and section 4A to deduction made from a dividend "on account of the income-tax payable by the company" does not include any amount deducted by the company from that dividend under section 194 of the Income Tax Act, 1961 (43 of 1961).

Where any preference share of a company has been issued and subscribed for before the lst April, 1960, and any portion of the profits and gains of the company in respect of the relevant period is exempt from income-tax under the Income-tax Act, 1961 (43 of 1961), by reason of such portion being agricultural income, then, for the purpose of the increase in the dividend in relation to any such preference share under the provisions of section 3, the increase of thirty per cent, or eleven per cent referred to therein shall be taken to be such proportion of the said thirty per cent or eleven per cent, as the case may be, as the total amount of the profits and gains of the company excluding the portion of the profits and gains which is so exempt in respect of the relevant period bears to the total amount of the profits and gains thereof in respect of that period.

Explanation : For the purposes of this section, "relevant period", in relation to the profits and gains of a company, shall mean�

(a) the previous years relevant to such of the three assessment years as immediately precede the assessment year ending on the 31st March, 1961, and in each of which the net result of the computation of profits and gains of the company has not been a loss or where there are only two such years, such two years, or where there is only one such year, such one year; or

(b) in any case where clause (a) is not applicable the previous year relevant to the assessment year ending on the 31st March, 1961, or a subsequent assessment year immediately following thereafter in which the net result of the computation of profits and gains has not been a loss.

Where the stipulated dividend in respect of a preference share of a company-

(a) is specified to be subject to income-tax and deduction is made there from on account of the income-tax payable by the company, or

(b) is being paid subject to a deduction there from on account of the income-tax payable by the company, notwithstanding the absence of any specification that the dividend would be subject to income-tax. such deduction made by the company from any dividend declared after the 28th day of February, 1966, shall in no case exceed twenty seven and a half per cent of the aggregate Of-

(i) the stipulated dividend, and

(ii) an amount equal to eleven per cent of the stipulated dividend as specified in sub-section (3) of section 3.

(1) The provision of this Act shall have effect notwithstanding anything to the contrary contained in any law for the time being in force or in the memorandum or articles of a company or in any agreement between the company and its shareholders or in any resolution passed by the company in a general meeting or by its Board of directors.

(2) Notwithstanding anything contained in this Act, a company may, in the manner provided in section 106 of the Companies Act, increase the amount of dividend in respect of a preference share beyond the limit specified in section 3 or section 4 of this Act.

Nothing contained in sections 3 or 4 shall apply to such part of any dividends on preference shares as is referred to in clause (1) of the Explanation to sub-section (1) of section 85 of the Companies Act.

(1) The Central Government may, by notification in the Official Gazette, make rules for carrying out the purposes of this Act.

(2) Every rule made under this section shall be laid as soon as may be after it is made, before each House of Parliament while it is in session for a total period of thirty days which may be comprised in one session or in two successive sessions, and if, before the expiry of the session in which it is so laid or the session immediately following, both Houses agree in making any modification in the rule, or both Houses, agree that the rule should not be made, the rule shall, thereafter have effect, only in such modified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that rule.

THE SCHEDULE : Modification of The Act in its Application to the Union Territory of Pondicherry

[See section 1(3)]

1. Sections 3 and 4 shall be omitted.

2. In section 4A, for the words, brackets, letters and figures "twenty-seven and a half per cent of the aggregate of (i) of stipulated dividend, and (ii) an amount equal to eleven per cent of the stipulated dividend as specified in sub-section (3) of section 3", the following shall be substituted, namely:-

"twenty-seven and a half per cent of the stipulated dividend:

PROVIDED that in a case where the preference shares in respect of which the dividend is declared or paid from part of the preference share capital of a company which, in respect of greater part of its total income, is entitled to a deduction from the tax chargeable from it under the Income Tax Act, 1961 (43 of 1961), under a notification issued by the Central Government under section 294A of that Act, the reference to twenty-seven and a half per cent of the stipulated dividend shall be construed as a reference to-

(i) where the stipulated dividend in respect of such preference share is declared or paid in respect of the previous year relevant to the assessment year commencing on the lst day of April, 1965, the said twenty-seven and a half per cent as reduced by forty-five per cent thereof;

(ii) where such dividend is declared or paid in respect of the previous year relevant to the assessment year commencing on the lst day of April, 1956, the said twenty-seven and a half per cent, as reduced by twenty-five per cent thereof;

(iii) where such dividend is declared or paid in respect of the previous year relevant to the assessment year commencing on the 1st day of April, 1967, or the 1st day of April, 1968, or the 1st day of April, 1969, the said twenty-seven and a half per cent as reduced by ten per cent thereof.

Explanation : For the removal of doubts it is hereby declared that any reference in this section to deduction made from a dividend on account on income-tax payable by the company does not include any amount deducted by the company from the dividend under section 194 of the Income Tax Act, 1961 (43 of 1961)."

3. In section 5, sub-section (2) shall be omitted.

4. Section 6 shall be omitted.