Budget blues: HLL to cut dividend rate

The scheme of arrangement for issue of bonus debentures and payment of special dividend, as approved by the shareholders on August 9, 2002, and approved 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 had further provided 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 company had then stated 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 crore, being Rs 1,320.7 crore towards bonus debentures and Rs 607.5 crore by way of special dividend.

‘The proposed changes in the Budget have replaced the provision for taxation of dividend at the hands of the shareholders (including tax deduction at source) by a provision of dividend distribution tax at the hands of the company at a flat rate of Rs 12.81 per cent (including surcharge). This change would, therefore, not benefit the company in any manner,’ an HLL release stated.

Accordingly, 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 crore (to be paid to the government) and distribute the balance of Rs 388.5 crore 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 crore remains unaltered. The company is awaiting approval of the Reserve Bank of India under FEMA, 1999, to progress the scheme.