Shares of Hindustan Unilever (HUL) fell nearly 1% on Tuesday after the FMCG major received a tax demand notice of ₹962.75 crore from the Income Tax Department. The notice pertains to the company's failure to deduct TDS on a ₹3,045 crore payment for acquiring India Health Food Drink (HFD) intellectual property rights (IPR) from the GlaxoSmithKline (GSK) Group.
The order was issued on August 23 by the Deputy Commissioner of Income Tax, Mumbai and includes ₹329.33 crore in interest charges, the company disclosed in a late-night regulatory filing on Monday.
Shares of the company fell 1% today, reaching a low of ₹2,802.30, down from the previous close of ₹2,821.15 on the NSE. The stock opened at ₹2,809 and is currently trading at ₹2,815.15. The company’s market capitalisation stands at ₹6.61 lakh crore.
In 2018, the FMCG maker acquired GSK's health food drinks portfolio, which included the Horlicks brand across India, Bangladesh, and 20 other primarily Asian markets. This merger also brought other consumer healthcare brands of the GSK group, such as Boost, Maltova, and Viva, into HUL's portfolio.
The company expects no significant financial impact from the order and is confident in the strength of its case. “The company has a strong case on merits on tax not withheld, basis available judicial precedents, which have held that the situs of an intangible asset is linked to the situs of the owner of the intangible asset and hence, income arising on sale of such intangible assets are not subject to tax in India,” HUL said in the filing.
HUL plans to appeal the order and pursue all necessary legal actions under Indian law. The company also holds an indemnification right to recover the tax demand and intends to enforce it.
