Hindustan Unilever Limited (HUL), one of India’s leading FMCG companies, has recently faced a significant setback. The Income Tax Department has served HUL with a tax notice for a staggering ₹962.75 crores, which includes ₹329.3 crores in interest. This development raises questions about the circumstances leading to this hefty tax demand. Let’s delve deeper into the situation surrounding this notice.
Why Did HUL Receive the Notice?
According to an exchange filing on Monday, the tax notice pertains to non-deduction of TDS (Tax Deducted at Source). The demand stems from the payment of ₹3,045 crores made to acquire the Horlicks brand from the GlaxoSmithKline (GSK) group in 2018. HUL did not deduct TDS during this transaction, which has led to the current tax liability. This acquisition not only included the Horlicks brand but also encompassed several other GSK brands like Boost, Maltova, and Viva, thereby expanding HUL’s portfolio significantly across India, Bangladesh, and over 20 other countries.
HUL’s Response to the Notice
In light of the notice, HUL has expressed its intention to appeal against the order. The company has a history of arguing that the income derived from the sale of intangible assets is connected to the owner’s location. Thus, they believe that such income should not be taxable in India. HUL is prepared to contest the demand set forth by the Income Tax Department, asserting that they have grounds to dispute the recovery of the tax amount.
Impact on HUL Shares
The receipt of the tax notice has impacted HUL’s market performance. Today, the company’s shares witnessed a decline of over 1.5%, trading at ₹2,777.25. At the start of the day, the shares opened at ₹2,806 but saw a downward trend as the news broke. Such fluctuations in stock prices are not uncommon for companies in the face of regulatory scrutiny, indicating market sensitivity to legal and tax issues.
Key Takeaways
| Aspect | Details |
|---|---|
| Tax Notice Amount | ₹962.75 Crores (including interest of ₹329.3 Crores) |
| Reason for Notice | Non-deduction of TDS during the acquisition of Horlicks |
| Acquisition Date | 2018 |
| Impact on Shares | 1.5% decline, trading at ₹2,777.25 |
Conclusion
Hindustan Unilever Limited finds itself at a crucial juncture as it navigates through this tax challenge. The outcome of the appeal and subsequent actions may have broader implications for the company’s financial health and reputation. Stakeholders and investors will be closely monitoring the situation to gauge its impact on HUL’s market position and future growth prospects.
