Meaning of “Distribution of dividend”

The meaning of distribution of dividend under section 104 to 109 of the Income Tax Act is not defined in the act itself. But we can take guidance from decisions by various high courts. Here are excerpts of courts orders in which the Hon’ble High Court tried to explain the meaning of distribution of dividend.

Meaning of distribution of dividend

The phrase ‘distribution of dividend’ used in section 104 to 109 of the Income Tax Act came up before hon’ble Madhya Pradesh High Court in Central Indian Industrial Corpn. Ltd. vs. CIT [1963] 48 ITR 543 (MP) and it explained.

Meaning : The ordinary meaning of the word ‘distribute‘ is ‘divide’ or ‘apportion’. Distribution in general is the act of dividing or making an apportionment. No doubt, in relation to distribution of publications or periodicals, the term may mean delivery to persons.

But when one speaks of distribution of a sum of money amongst a number of persons, what is connoted is the division or apportionment of the amount amongst the persons and not an actual payment of the amount of their shares. A declaration of dividend by a company is nothing but a declaration of the distribution of the profits as dividends. On the declaration of dividend, the shareholders get a right to sue the company for the amount of the dividend.

It is easy to see that if distribution of dividends for the purposes of section 23a is taken to mean actual payment of the dividend amount to the shareholders, then it would be difficult to reconcile section 16(2) and section 23a of the 1922 act.

Section 104 of Income Tax Act

[Chapter XI omitted by the Finance Act, 1987, w.e.f. 1-4-1988. While sections 95 to 103 were omitted by the Finance Act, 1965, w.e.f. 1-4-1965, sections 104 to 109 were omitted by the Finance Act, 1987, w.e.f. 1-4-1988.]

Income-tax on undistributed income of certain companies.

104. [Omitted by the Finance Act, 1987, w.e.f. 1-4-1988.]

In this article, you can get guidance from high courts on the meaning of distribution of dividend under section 104 to 109 of the Income Tax Act.

Updated up to Finance Act 2021