Tuesday, May 21, 2002
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By Our Staff Correspondent
This follows the revised tax regime under the Finance Bill 2002 as approved by Parliament. Post-budget, HLL had said on February 28 that it would study the new tax regime and accordingly revised the scheme. In addition to a bonus debenture of Rs. 6 each per share, HLL will also pay a special dividend of Rs. 2.76 per share as part of the scheme. The entire tax on bonus debentures and special dividend will be deducted out of the Rs. 2.76 special dividend, ensuring that the face value of the bonus debenture is uniform at Rs. 6. As per the revised tax regime, bonus debentures construed as `deemed dividend' for tax purposes, would now be taxable at the hands of the shareholders and the company will therefore have the obligation to make tax deduction at source (TDS) at rates prescribed for varying classes of shareholders. The changes to the scheme are being proposed in the light of this requirement. The debentures would be redeemed after 18 months in one instalment instead of redemption in two equal instalments after 24 and 36 months as originally proposed. This has been proposed in recognition of the time elapsed since the original formulation of the scheme. The grant price of the options issued to the management employees will be reduced by Rs. 8.76 to reflect the exceptional nature of the payment. Further, the options will not qualify either for bonus debentures or special dividend. The original scheme entails issue and allotment of bonus debentures in the ratio of one fully paid debenture of Rs. 6 each for every share of Re. 1 held by the members. The face value of the bonus debentures at Rs. 6 and the ratio of issue, that is, one bonus debenture of Rs. 6 each for every equity share of Re. 1 held using the general reserves of HLL is being retained and the interest on debentures has been retained at 9 per cent per annum payable in arrears as in the original scheme. The special dividend has been calculated keeping in mind shareholders who are in the highest tax bracket of 31.5 per cent. The general reserve will, however, not be debited to the extent of about Rs. 135 crores, being dividend distribution tax payable at 10.2 per cent on `deemed dividend' as contemplated in the original scheme since the dividend distribution tax is no longer applicable. Instead, the special dividend of Rs. 2.76 will involve a payout of about Rs. 608 crores. The special dividend will be payable by reference to the same record date as may be fixed for allotment of bonus debentures and is proposed to be absorbed by the profit and loss account balance which as of December 31, 2001 stands at Rs. 759.80 crores. Accordingly, the company is committing itself to an incremental outlay of around Rs. 473 crores. TDS would be made from the bonus debentures constituting deemed dividend and on the quantum of special dividend, treating the two as an integrated transaction involving payout of deemed dividend/ special dividend aggregating Rs. 8.76 per share of Re. 1 to members. While the face value of the debentures is uniform at Rs. 6, the entire TDS on Rs. 8.76 per share will be from the special dividend of Rs. 2.76 per share. The balance of special dividend, if any, would be paid to members. Shareholders who are not liable to pay tax or fall in lower tax brackets, constituting almost half of HLL's shareholders, would benefit as they can gain as much as the entire special dividend quantum of Rs. 2.76 per share.
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