Defusion of 2016: Now the Income Tax Department is imposing a capital gains tax claim on Grasim of Rs 8,334 crore
The Income Tax Department has raised a capital gains tax claim of Rs 8,334 crore on Grasim Industries, the flagship company of the Aditya Birla group, in connection with the sale of shares in the group company Aditya Birla Capital (ABCL) in connection with the 2016 demerger of group companies.
In March 2019, the company received a Dividend Distribution Tax (DDT) claim of Rs 5,872 crore related to the same corporate restructuring deal and obtained a stay order from the Bombay High Court.
The new tax claim relates to the 2018-2019 tax year and includes interest but no penalty.
Informing the ESB of the new tax demand, Grasim Industries said “the company will take appropriate action against said order which it deems to be contrary to the spirit of tax laws”.
The restructuring followed the merger of Aditya Birla Nuvo with Grasim. After the merger, Aditya Birla Nuvo’s financial services business was split into ABCL. The Ahmedabad National Company Law Court approved the split in 2017.
“We refer to our previous communications dated March 16, 2019 and March 25, 2019 informing the stock exchange (s) of the dividend distribution tax request imposed on the company by the Assistant Income Tax Commissioner ( DCIT) and the subsequent stay granted by the Honorable Court in the case, pending the decision of the Hon’ble Tribunal, ”Grasim said in the ESB case.
“As a corollary to the previous ordinance, the scholar DCIT also imposed a capital gains tax on the value of the shares, without considering that the shares were issued to shareholders in accordance with the plan of arrangement and that no consideration has not been received by the Company, which could be subject to tax, ”he said.
The DCIT valued the shares issued by the resulting company (ABCL) at Rs 24,037 crore as consideration for the sale for the transfer of the business, and added capital gains of Rs 22,772 crore to the income of the company as part of the review assessment for YY 2018-19 and adopted the draft assessment order on September 30, 2021.
The tax authorities had, in the previous ordinance, held that the value of the shares allocated by ABCL to the shareholders of Grasim Industries, in consideration for the sale and acquisition of the company split by ABCL, was equivalent to a dividend, within the meaning of of the Income Tax Act.