Financial Daily from THE HINDU group of publications
Thursday, Mar 31, 2005
Financial Daily from THE HINDU group of publications Thursday, Mar 31, 2005 |
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Taxation Money & Banking - Public Sector Banks Return of capital — PNB not to bear additional tax on reduction of share premium account Sarbajeet K. Sen
Mr S.S. Kohli, CMD
New Delhi , March 30 IN what would set a precedent for similar return of capital by other public sector banks, the Government has assured the Punjab National Bank (PNB) that there would be no additional tax burden on the bank on account of reduction from the share premium account. The bank has been assured that should there be a tax call at a later date, the tax payable would be adjusted from the total capital returned. The bank had expressed fears in its red herring prospectus for the recent follow-on public offer that it might have to shell out dividend distribution tax should the reduction of share premium account be treated as dividend payment. "The Government has assured us that we would not have to bear any additional tax burden on account of the reduction from the share premium account. "We have also played it safe and have split the total amount returned into two cheques with one representing the tax amount should a demand be made on us later," the Chairman and Managing Director, PNB, Mr S.S. Kohli, told Business Line. The bank today paid Rs 1,153.01 crore to the Government for 3 crore shares of Rs 10 each at an issue price of Rs 390 per share after deducting proportionate issue expenses. Out of the total amount, PNB has signed out a cheque of Rs 148.98 crore as dividend distribution tax. The tax is calculated at 12.5 per cent of the dividend amount with an additional 2.5 per cent surcharge on the total plus a further 2 per cent education cess. In its prospectus, PNB had pointed out that though the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, permits reduction of share capital there was ambiguity on whether it permits reduction from the share premium account. "It is possible that the part of the payment to the Government which represents the amount debited from the share premium account could be deemed to be a dividend and consequently, there could be tax implication on us," the bank had said. The bank, however, had pointed out that legal opinion obtained by it suggested that reduction of share premium account was permitted under the Act. "In the event that the Bank Acquisition Act is interpreted so as not to permit the payment to the Government from the share premium account and the Government does not respond in a satisfactory manner to our request, we could suffer tax or other consequences arising from the characterisation of the transaction as to which we are not indemnified and such consequences could be material," PNB has said in its issue prospectus.
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