The Income Tax Department has slapped a Rs 5,872 crore demand in tax on Aditya Birla Group company Grasim Industries with respect to its merger with Aditya Birla Nuvo and Aditya Birla Financial Services.

"The company has, on March 15, 2019, received an order dated March 14, 2019, issued by the Deputy Commissioner of Income Tax (DCIT) raising a demand of Rs 5,872.13 crore on account of dividend distribution tax (including interest)," Grasim Industries said in regulatory filing.

The DCIT held that as the demerger of the demerged undertaking is not in compliance with Section 2(19 AA) of the Act, the value of shares allotted by Aditya Birla Capital Ltd (ABCL) to the shareholders Grasim Industries, amounted to dividend, within the meaning of the Act, the company said.

Grasim said, it is of view that, the aforesaid order is not tenable in law.  "The necessary action(s) against the order is being taken by the company," it added.

As on February 11, the DCIT had issued a show cause notice, subsequently revised on March 1, 2019, as to why the provisions of section 115-0 read with section 115-Q of the Income Tax Act, 1961 (the Act) should not be applied on the allotment of equity shares by ABCL to the shareholders of the company, pursuant to the Composite Scheme of Arrangement between Aditya Birla Nuvo Limited and Grasim Industries Limited and ABCL.

In September 2017, the National Company Law Tribunal (NCLT), Ahmedabad bench, had approved the merger of Aditya Birla Nuvo with Grasim Industries to be followed by the listing of Aditya Birla Financial Services Ltd (ABFSL).

(with inputs from PTI)

Edited by Chitranjan Kumar