Oracle Financial Services succeed in saving dividend tax of Rs 142 crores by distributing the dividend before October 1.
As per Section 115-O of income tax act, the company is require to pay tax on dividend at the effective tax rate of 16.995% (15% tax + 10% surcharge + 3% education cess).
According to the Budget presented by finance minister Arun Jaitely, it is proposed that dividend distribution tax will be levied on gross amount instead of amount paid net of taxes and this will lead to increase in Dividend tax by 2.47%.
The above method to calculate the dividend distribution tax will comes into effect from 1st October, 2014.
After proposing change in above method for computing tax on dividend, a large number company rushed into declaring & distributing dividend on or before 30th September, 2014 after which higher tax comes into effect.
Further, Section 115O(3) states that the principal officer of the domestic company and the company shall be liable to pay the tax on distributed profits (Whether Interim or Final) within fourteen days from the date of—
- declaration of any dividend; or
- distribution of any dividend; or
- payment of any dividend,
whichever is earliest.
In such scenario, Oracle Financial had declared its book closure from September 8 to 12. On September 8, the company informed stock exchanges that interim dividend would be declared in the shareholders’ meeting held on September 12. An interim dividend of Rs 485 a share was declared and September 25 were fixed as the record date and September 29 as the date for paying the dividend.
However, Clause 16 of NSE’s listing agreement states that the Company must ensure that there is a gap of at least 30 days between 2 book closure and record date for declaring dividend (here “OR” word along with “and” was not included as the same is included in BSE listing agreement) . In this context, Stock exchanges referred the matter to SEBI which on September 19 said that the record date was fixed in violation of the listing clause.
Oracle filled appeal before the Securities Appellate Tribunal (SAT) challenging Sebi’s view. SAT ruled the decision in favour of Oracle. The tribunal said that the word ‘and’ used between ‘two book closures’ and ‘record dates’ in clause 16 of listing agreement does not mean that there should be a time gap of 30 says between a book closure and a record date.
The above decision of SAT saved dividend tax of Rs 142 crores for Oracle Financial Services by distributing the dividend before October 1.