 the preference shares (regulation of dividends) bill, 1960(to be introduced in lok sabra)  the preference shares (regljiation of dividends) bill, 1960 (to be introduced in lok, sabha) a billco regulate ctivtdends on preference shares 01 c'en41n compa?des ihl it enacted by parliement in -the eleoventh year 'of the reptibuc 'of india'as follows:-1 (1) this act may be called the preference sbaree (re,watiod short tid ed dividends) act, 1960 :!cc:-esac s (2) it~x'tends' to'the whole of india: pl'ov~d that it tiau not apply to the state 'of 'jammuld1d kaahmir except to· the extent to which the provisions' of this' lct relate to the regulation' of dividends onpreferenee shar5 ofl!jarlkiag  ad ift8llftmce ~rnpanies and' flnandalc'cll'porauons 10 2 in this act, unless ,the context otherwise requires,-(g) "companies act" meahs' the cdmpmties a'et, 1956~ (b) "<:ompany" means a company as defined in clause (1a) of section 2 of the indian income-tax act, 1912 and: includes a company referred to in sub-elause (ii) of clause (sa) , -91 tileaaid' section -which' has mad~ ~ents far the de- ele'atio'ft mdpayrnent 'of dtvidl!!hds '\1tit1'bn india in aceordance with the rules made under the, said act; (c) ~'lnf8ndce,ahare" fthwlsa _hare wkicb "_ving been iisued and subscribed for befere the' lat· day·'of april, '1160, ear-,ao ries,  respects dividend!!,· 8 preferential right-to be paid a fixed amount or an amount -calallated't a 'fixed' me; (e) "stipulated dividends", in relation to a preference share, means the fixed amount or the qillount calculated at a fixed rate which the holder of such share has a preferential right to be paid 5 u 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 ~doa 3 (1) where the stipulated dividend in respect of b preference 10 , atu!edc1t ihare of a company-_prd'erace lbaniid  <ii (a) is specified to be free of income-tax, or (b) was being paid before the 1st april, 1960, without any deduction therefrom on account of the income-tax payable thereon by the company, notwithstanding the absence of any specifi- is cation thet 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 free of income-tax such amount as would exceed the stipulated dividend by 'wenty-ftve per cent thereof 20 (2) where the stipulated dividend in respect of a preference share of a company issued and subscribed for after the 31st march, 1959 ia 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, 25 f!!very such share shall, as respects dividends declared biter the commencement of this act, carry a preferential right to be paid free of - r income-tax such amount as together with the sum aforesaid would exceed the stipulated dividend by twenty-five per cent thereof (3) where the stipulated dividend in respect of a preference 30 lhare ot - company-'  : <a) is specifted to be subject to income-tax and a deduction is made therefrom on account of the income-tax payable thereon by the company, or , (b) \vb 'being pa,id bef~e the 1st april, ~980,ubject to - !~ dtduction therefrom on account at the income-tax pa:yble thereon by the company, notwithstanding the absence of any speci1lcation that the dividend would be subject to income-tax, tben, flywy such share shall, as respects djvidendl declared after tae comm8ncement· of this act,carry apreferential rigb,t to be paid iucb amount subject to the deduction aforesaid as would exceed the' ijtipu-iated djvidend by seven per cent thereof $ (4) where a company has in relation to a preference lihue dec-jared,-(a) after the 31st march, 1959, and before the 1st july, 1980, a· dividend in respect of a previous year relevant to its assea-  ment year 1960-61 or a subsequent assessment year, or 10 (b) after the 30th june, 1960, and before the commeneement of this act, a dividend in respect of any previous year, it shall declare, in respect of the said previous year, an addjtional d 'vidend of such amount as, together with the dividend already deelared, would exceed the stipulated dividend-15 (i) by twenty-five per cent of the' stipulated dividend in the cases referred to in sub-section (1), or (ii) by seven per cent of the stipulated dividend in the cases referred to in sub-section (3) (5) for the purposes of sub-section (1), sub-section (3) and sub-20 section (4), any reference therein to the stipulated dividend shau, 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 ii of 1912 4 where any preference share has been issued by a company of sp~cia1 pro-2s which any portion of the profits and gains in respect of the relevant v1s110?s ld  d' h h h reatlodto peno is not c argeable to income-tax under t e provisions of t e l'ompldici indian income-tax act, 1922, thc'!1, for the purpose of the in- wh~ of crease in the dividend in relation to any such pre- f:e1r iacome ference share under the provisions of section 3, the increase of i~~~ c::r-30 twenty-five p0r cent or seven per cent referred to therein shall be fncomc-lu t~ken to be such proportion o~ the said twenty-five per cent or seven per cent, :is the ca!'e may be, as the total amount of the portions of the profits and gains of the company in respect of the relevant period on which income-tax is chargeable bears to the' total amount 3s 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 y~ as immediately precede the assessment ytar 40 endjng on the 31st march, 1961, and in each of which the net result of the computation of profits and gains of the company ~p~~ ~j1,~~9t~h,~: ~~e~! are c?~ ~olu~h yeen 1= t~~ ~""~!' ~!!:! t~~~ ~ ~~ ~~~ ~':lc~~, ju~ 1}~yur;or (b) in any case wbanc:lauae (a)is ack ppllcawt u, vi~~, ye~r r~~yan~ to the as~~s~~en~ year ending on jtle 31st march, 1961 or a subsequent assessment year immediatelyfol-'· lowing thereafter in which the net result of the computation  'of proits ancl gatn:s hail not beeu:a lois oyel'-ridlda 5 (1) the provi:do~s of this act sh~ll hav~ ~1f~ notwtthstanddect of act ing anything t!> the con~r~ry contained in any law for the time being in force" or in the memorandum or articles of a company ql" in any 10 agreement between the company and its sharehelders or in· any ~~ ~~"b~:the·c~y m a 8~~ me~orbyt1~ b9j1!rc4 ·91 w~'f (2) notwithstanding anything contained in this act, a compad, may, in the mannel' provided in section l06·of the companies act, 15 increase the amount of dividend in respect of a pre£eenceahare bqodfl the liwt speei1i~ in s~ion 3 or secticlll 4 ofthi - act ad: not to 6 nothing contained in this act shall apply to such part of any ~lf~t~~ cl~~ on p~cq shnesas is referred to in c1a~ (i) of the pref:rence b~~tq ju~ion (1) of ~tiod 85 of the cq~~ zq dividends a~t··  r::~rr~ks 7 (1) the central government may by nc?tiftcatioi\ ~ the omcia! gazette, make rules for carrying out the purposes of this act (2) e\t~ rulemade under this section shall be laid as sqqq 8l , ~ beaftar it is made before each houae of parliament while it is 25 in se~on for a total period of thirty dayli which may be comp;rised in one ~n or in two successive sessions, and if, befo£e the expj;!:y o~ the session in which it is so laid or the sessi~ imme<iiately follow¥;lg both house,s agree in making any modification in thq rul  or both hous~ agree that the rule should not be made the rule 30 sh~ll there¥ier hav~ effect only in such modified fol'm or be of po ~~ as the case llu!y be, so, bowev~, that any $uch mqditwatiea or ~ulj;dent~ll be wjtho\lt prej,udice to the va¥idi~)'! of ~~ previously d • ),l~~ that ~ic: wita ule iil~r04yctiop of the new scheitle oftaxatiqd in relation ;q~p1lti of cqt:npanies julq divid~nd" therefrom by the finance acta, lq~ ~,lq6q, tlw' effectjve :rate of income-ta;x: and super-tax h~ b~ d"eqluied in the case of indian companies and such foreign companies as have made the prescribed arrangements for the declaration -ad ·paytnht of diftiena- 4n iruiia~ siiilultaneoua1y the:· tax based on, e  dividends ajhl the wealth  tax on eoznpani_ h~ also bee abushed it was expected· that ua resv-lt of the -savida in  tl» tax', payable by colllpaaiee they··would deoluehi,ael' diyt, denda-w an the shareholder& whethel' holdifl, pre~ -er ,0niinu7 shane,· tb1s expectation, diet not matenausein the ,(8$0,-01 pm  en4m ihuehelders it haa been -bl'gught to the l1«8ice ef govemmtllt that many companies ·have not made uitable increues iii the dm· dend~ p~yable to preference shareholders in some cases, the companie~ have indicated that while in principle the)" arree that preference sha,reholders should get a larger dividend, there a~ praeti91 diftlcult~es in their declaring large·r dividencb to them; in thebe circum,stanees, it is considered necessary to undertake lerislatieftfor the purpose 0f regulating dividenas on preferenee s-harea- ;~ and subscribed for before the 1st april, 1960 2, ~e pj,"esent b1ll seeks to achteve th(· above qbject and the notes oncl~us~s explain the various provisions thereof n1:w delhi; m'orarji desai the 29th a uguat:, 1960' clause 2 defines inter alia, "company", "preferenc' ~ share" and "stipulated dividend" the definition of "company" has been taken from the indian income-tax act, 1922 and excludes from the scope of the term such fareign companies as have not made the prescribed arrangements for the declaration and payment of dividends in india the definition of "preference share" follows the definition of "preference share capital" contained in section 85 (1) of the companies act, 1956, but is restricted only to shares issued and subscribed for before the 1st april, 1960 in respect of preference shares issued and subscribed for after the 31st march, 1960, the companies and the shareholders are fully aware of the legal position and it is up to the companies to clarify to the new shareholders their right as to the amount of dividend payable to them ctause 3-sub-clause (1) provides for the regulation of dividends on preference shares where the dividend is either specified to be tax free or which was being paid by the company without any deduction therefrom on account of income-tax payable thereon by the company although the dividend· on such shares was not specified to be tax free sub-clause (2) applies to preference shares issued and· subscribed for after the 31st march, 1959 but before the 1st april, 1960 the stipulated dividend on which is specified to be tax free and in respect of which the· company agrees to pay to the government on behalf of the shareholder, the whole or a part of the tax payable thereon in addition to the basic dividend  sub-clause (3) regulates the dividends on a preference share the stipulated dividend on which is either specified to be subject to income-tax or was being paid before the 1st april, 1960 subject to deduction on account of income-tax payable by the company thereon although not specified to be subject to income-tax· sub-clause (4) in substance gives retrospective effect to subclauses (1) and (3) and provides for the declaration of an additional dividend on preference shares where any dividend declared in respect thereof after the 31st march, 1959 and before the commenceme·nt of the act a not entitled to the benefit of "grossing" under the provisfollj of the indian income-tax act, 1922 and the d1v1dend , already declared is leas than the dividend provided for under the bill  ' , ~  'si£b-clau8e (5) prcw'ides that in' respect of a preferenee -llbare issued and subscribed far on or before the 31st march, 1959 the increase to be made under sub-clauses (1), (3) aj;ld (4) shall be with reference to the stipulated dividend as on the 31st march, 1959 clau:se 4 provides for proportionate increase in the dividend on preference shares whe:re a part only of the income of the company is chargeable to income-tax clause 5-sub-clause (2) makes a clarificatory provision that a ' company may for the purpose of declaring a larger dividend than that provided for in this bill take recourse to the, provisions of section 106 of the companies act, 1956 clause 6 makes it clear that the provisions of the bill will not apply to the additional dividend which a participating preference \ sbareholde·r is entitled to receive along with the equity shareholders in addition to the fixed amount of dividend for which he has a preferential :right clause 7 makes the usual provision authorising the central government to make rules for carrying out the purposes of the bill ctaull''7 'of the':em atl'tharijes the ceiltnl o~~e~llt1o "!ftillie tutes"' for" elll'ry12lg out' the pl1rpdse of this ':!in ~ f!l'uteted:!fre roles would d~al "with proeedutal and adl'nin1rltltuve' tmlttt'ts -efiiy   «'h  tieft of l~ pewer i& 01 'bonaal"""-r a bill to regulate dividends on preference shares of certain companies (shri morarji desai, minister of finance) 