The Telegraph
Since 1st March, 1999
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Lever recasts bonus debenture scheme

Mumbai, March 5: Hindustan Lever (HLL) today said its long-awaited bonus debentures will now come with modifications that have become necessary after the budget made dividends tax free in investors’ hands.

Shareholders will get a special dividend of Rs 1.765 on every Re 1 share, down from Rs 2.76 envisaged earlier. In addition, they will get bonus debentures of Rs 6 each.

Sources say the change was cleared by shareholders, who earlier agreed to an adjustment in the special dividend if a dividend distribution tax was re-introduced. The company, however, said it does not stand to gain from the budget proposal shifting the tax from investors — deducted at source — to companies paying dividends.

In a letter to exchanges, Lever said the scheme of arrangement — cleared by shareholders in August 2002 and the Mumbai High Court later — provides for a bonus debenture with a face-value of Rs 6 each against every Re 1 share, and a special dividend of Rs 2.76. Both will be handed out at the same as part of an integrated transaction.

The tax deduction at source for bonus debentures — constituting “deemed dividend” and on the special dividend — will be made from the special dividend so that the face-value of bonus debentures remains at Rs 6 each.

The scheme empowers the board to tailor the plan to suit possible amendments in tax laws. This will ensure that the cost does not rise beyond the Rs 1,928 crore sanctioned by shareholders — Rs 1320.7 crore for bonus debentures and Rs 607.5 crore to pay the special dividend.

“The proposed changes in the Budget for 2003-2004 have replaced the provision for taxation of dividend in the hands of the shareholders (including tax deduction at source) with a provision of dividend distribution tax on the company at a flat rate of 12.8 per cent,” the company said in its letter sent to Bombay Stock Exchange.

The dividend distribution tax amounting to Rs 219 crore will be borne by the company, provided the board approves it. The balance, Rs 388.5 crore, will go to shareholders in the form of the special dividend of Rs 1.765.

“Accordingly, neither bonus debentures (deemed dividend) nor the special dividend will be taxable in the hands of the shareholders. The company’s outflow at Rs 1,928 crore remains unaltered,” the company said.

Lever said it is now waiting for Reserve Bank’s clearance under Fema provisions to go ahead with the scheme.

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