The Hindu : HLL clarifies on dividend distribution tax

Online edition of India's National Newspaper
Thursday, Mar 06, 2003

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Business

HLL clarifies on dividend distribution tax

By Our Corporate Reporter

CHENNAI MARCH 5. Hindustan Lever has clarified that it does not stand to gain due to the Central budget proposals to replace the taxation of dividends at the hands of shareholders by a dividend distribution tax at the hands of the company.

This is in regard to the proposed issue of bonus debentures and payment of special dividend.

The scheme of arrangement, as approved by the shareholders on August 9, 2002, and by the High Court, provides for issue of one bonus debenture of the face value of Rs. 6 each for every share of Re. 1 each. It further provides for a special dividend of Rs. 2.76 for every share of Re. 1 each to be paid simultaneous to the issue of bonus debentures, as a part of the integrated transaction. The tax deduction at source for both the bonus debentures constituting "deemed dividend" and on the special dividend was to be made from the special dividend payable to the shareholders so that the face value of bonus debentures could be kept uniform at Rs. 6 each. The scheme further provides that in the event of any change in the tax laws, the Board could make consequential changes in the scheme to ensure that the outflow under the scheme does not exceed the amount, as approved by the shareholders, at Rs. 1,928 crores, being Rs. 1,320.7 crores towards bonus debentures and Rs. 607.5 crores by way of special dividend.

The proposed changes in the budget for 2003-04 would not benefit the company in any manner.The company would, subject to the approval of the Board in terms of the authority delegated to it under the scheme, now bear the dividend distribution tax at Rs. 219 crores (to be paid to the Government) and distribute the balance of Rs.388.5 crores to the shareholders, by way of special dividend of Rs.1.765 per share of Re.1 each, over and above the bonus debenture of Rs. 6. Accordingly, neither the bonus debentures as "deemed dividend" nor the special dividend would be taxable at the hands of the shareholders, while the outflow of the company at Rs. 1,928 crores remains unaltered.

The company is awaiting approval of the Reserve Bank of India under Foreign Exchange Management Act (FEMA 1999) to progress the scheme.

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