Shapoorji Pallonji (SP) Group’s exit plan from Tata Sons, if approved, would likely bring in a tax windfall for the Centre.
Experts say that current laws in relation to capital reduction and fair value of assets, require the recipient (SP Group) to pay charge on deemed dividend (to the extent of distributing free reserves) and capital gains tax (on assets over and above free reserves) to the Centre, Business Standard reported.
The Mistrys have 18.4 percent stake (worth Rs 1.78 lakh crore) in Tata Sons, which as of March 2020 had free reserves of Rs 45,545 crore. The tax would thus be hefty, requiring the Mistrys to sell shares in listed Tata group companies to build the amount.
Ketan Dalal, Managing Partner at Katalyst Advisors LLP told the paper that the capital reduction would likely be conducted under the Companies Act by a National Company Law Tribunal (NCLT).
“Tax would depend on 'methodology of the payment, such as payment in cash against payment in kind or a combination of both… the general provisions of tax laws applicable to capital reduction, the recipient would be chargeable to deemed dividend (to the extent of the distributing company's free reserves) and in relation to the fair value of assets over and above such free reserves, there would be capital gains. This seems unfair because there is no monetisation at that stage," he added.
SP Group submitted a plan of separation to the Supreme Court on October 29, seeking non-cash settlement in form of shares in all listed Tata entities where Tata Sons owns stake – basis pro rata split of listed assets (per known share price value) and pro rata split of brand (as per valuation done and published by Tatas).
The ask would mean that for the Tatas 72 percent ownership in Tata Consultancy Services (TCS), the SP Group's ownership of 18.37 per cent in Tata Sons would entitle them to 13.22 percent stake in TCS worth Rs 1,35,000 crore at present market capitalisation, as per the statement.
The Tatas had last told the Supreme Court that they were willing to buy out the Mistrys’ share. Sources said they would respond to the latest settlement offer in court, the report added.
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