Amended and updated notes on section 236 of Income Tax Act 1961 as amended by the Finance Act 2022 and Income-tax Rules, 1962. Detail discussion on provisions and rules related to Relief to company in respect of dividend paid out of past taxed profits.
Chapter XVIII (Sections 236 to 236A) of the Income Tax Act 1961 deals with the provisions related to relief respecting tax on dividends in certain cases. Section 236 of IT Act 1961 provides for Relief to company in respect of dividend paid out of past taxed profits.
Recently, we have discussed in detail section 234G (Fee for default relating to statement or certificate) of IT Act 1961. Today, we learn the provisions of section 236 of Income-tax Act 1961. The amended provision of section 236 is effective for financial year 2022-23 relevant to the assessment year 2023-24.
In this article, you will learn detail of the provisions of section 236 of the Income Tax Act, 1961 Bare Act read with the Income-tax Rules, 1962 as provided by Ministry of Law and Justice, Government of India.
Section-236: Relief to company in respect of dividend paid out of past taxed profits
Section 236(1) of Income Tax Act
Where in respect of any previous year relevant to the assessment year commencing after the 31st day of March, 1960, an Indian company or a company which has made the prescribed arrangements for the declaration and payment of dividends within India, pays any dividend wholly or partly out of its profits and gains actually charged to income-tax for any assessment year ending before the 1st day of April, 1960, and deducts tax therefrom in accordance with the provisions of Chapter XVII-B, credit shall be given to the company against the income-tax, if any, payable by it on the profits and gains of the previous year during which the dividend is paid, of a sum calculated in accordance with the provisions of sub-section (2), and, where the amount of credit so calculated exceeds the income-tax payable by the company as aforesaid, the excess shall be refunded.
Section 236(2) of Income Tax Act
The amount of income-tax to be given as credit under sub-section (1) shall be a sum equal to ten per cent of so much of the dividends referred to in sub-section (1) as are paid out of the profits and gains actually charged to income-tax for any assessment year ending before the 1st day of April, 1960.
Explanation-1: For the purposes of this section, the aggregate of the dividends declared by a company in respect of any previous year shall be deemed first to have come out of the distributable income of that previous year and the balance, if any, out of the undistributed part of the distributable income of one or more previous years immediately preceding that previous year as would be just sufficient to cover the amount of such balance and as has not likewise been taken into account for covering such balance of any other previous year.
Explanation-2: The expression “distributable income of any previous year” shall mean the total income (as computed before making any deduction under Chapter VI-A) assessed for that year as reduced by—
- (i) the amount of tax payable by the company in respect of its total income;
- (ii) the amount of any other tax levied under any law for the time being in force on the company by the Government or by a local authority in excess of the amount, if any, which has been allowed in computing the total income;
- (iii) any sum with reference to which a deduction is allowable to the company under the provisions of section 80G; and
- (iv) in the case of a banking company, the amount actually transferred to a reserve fund under section 17 of the Banking Companies Act, 1949 (10 of 1949),
and as increased by—
- (a) any profits and gains or receipts of the company, not included in its total income (as computed before making any deduction under Chapter VI-A); and
- (b) any amount attributable to any allowance made in computing the profits and gains of the company for purposes of assessment, which the company has not taken into account in its profit and loss account.