Dividend declared by the board of directors of a company between two annual general meetings is called interim dividend. As per Section 2(14A) of the Companies Act dividend includes interim dividend also.
The Board of directors has the power to declare interim dividend. The amount of interim dividend is required to be deposited in a separate bank account within five days from the date of declaration of such dividend [section 205 (1A)].
The amount of interim dividend so deposited under sub-section (1A) shall be used for payment of interim dividend. The provisions of the act applicable to dividend are also applicable to interim dividend.
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The board may from time to time pay to the members such interim dividends as appear to it to be justified by the profits of the company. An interim dividend is only a payment on account of the whole dividend for the year.
If the working of the whole year results in loss, payment of interim dividend will amount to the payment of dividend out of capital and the directors will be personally liable to make good to the company the amount of interim dividend improperly disbursed.
It is essential for a company to provide depreciation for the whole of the year and not proportionately for any fraction of the year before declaring interim dividend. This is because provision for depreciation is a condition precedent for declaration or payment of any dividend.
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It is prudent to prepare interim accounts to ascertain the amount of profits earned and to see whether the profits for the accounting period up-to-date sufficiently justify the payment of an interim dividend.
The directors should not rely on a receipt and payment account for the purpose of determining whether or not an interim dividend should be paid as the excess of receipts over payments does not reflect the profit and loss of the company. Of the profits computed from the interim accounts a great margin should be allowed before arriving at the amount that may be declared as interim dividend.
Revocation of Interim Dividend:
Interim dividend is to be paid within 30 days of declaration. Since the provisions applicable to dividend apply to interim dividend also, the interim dividend becomes debt due once it is declared.
Thus, interim dividend can be revoked under the same circumstances where dividend can be revoked.