Tata Motors DVR shares update: Allotment of new ordinary shares to TML Securities Trust approved

Following the suspension of Tata Motors DVR shares from stock exchanges, Tata Motors Ltd informed stock exchanges that its allotment committee, as empowered and authorised by the board of directors, approved the allotment of 35,59,52,028 (35.59 crore) new ordinary shares of the face value of Rs 2 each fully paid-up, including fractional entitlements, to TML Securities Trust on September 1.

This is an independent and irrevocable determinate private trust, of which Axis Trustee Services Limited is an Independent Trustee, which would hold the new ordinary shares on behalf and for the benefit of the eligible ‘A’ ordinary shareholders of Tata Motors.

Tata Motors set the conversion ratio for DVR shares at 10:7 -- seven fully paid up new ordinary shares for every 10 ‘A’ ordinary shares. The record date for the determining eligible shareholders was set at September 1.

"Consequent to the aforesaid allotment, the paid-up ordinary share capital of the company stands increased from Rs 6,64,97,94,561 divided into 3,32,46,58,528 ordinary shares of Rs 2 each to Rs 7,36,16,98,617 divided into 3,68,06,10,556 ordinary shares of Rs 2 each (considering the amount of subscribed share capital plus shares forfeited less calls in arrears)," Tata Motors said.

The aforesaid new ordinary shares shall rank pari passu in all aspects with the existing ordinary shares of the company, Tata Motors said on Sunday.

In a capital reduction scheme, consideration distributed in the form of new shares is treated as distribution of accumulated profits to the shareholders. This is as per Section 2(22)(d) of the Indian Income Tax Act, 1961. Accordingly, accumulated profits as on the record date was treated as deemed dividend in the hands of shareholders and will be taxable at the applicable tax rates (including slab rates for individuals). This will also be subject to TDS.

There are 3 legs of tax applied to shareholders, who are receiving ordinary shares against DVR shares. First, TDS on deemed dividend will be paid by TML Securities Trust on behalf of shareholders. The trust will pay this TDS by selling ordinary shares so allotted to shareholders in T+15 days post September 1. TDS will be claimed back by shareholders in their ITR based on certificate issued by TML Securities Trust. TML Securities Trust will also pay STCG for selling shares. Net quantity after paying TDS will be allotted to shareholders, accordingly. Lastly, LTCG will be paid by shareholders who receive ordinary shares against DVR, Deven Choksey DRChoksey FinServ Private Limited said in a note.