As it turns out, the biggest beneficiary of the long-drawn dispute between the Tatas and Mistrys will be the central government, as it has now been reported that the settlement plan being looked at as the most viable option for the two parties would effectively end up bringing in tremendous taxes for the government. At the heart of the unexpected massive income for the central government lies the embitterment of ties between the Tatas and SP Group, which has evolved into a complicated hot mess over the past four and a half years.
According to a report by the Business Standard, the exit plan of Shapoorji Pallonji Group from Tata Sons would require them, as per existing laws of capital reduction and fair valuation of assets, to pay the charge on deemed dividend (to the extent of distributing free reserves) and capital gains tax (on assets over and above free reserves) to the Centre. Of course, the massive income for the Centre from the Tata-Mistry dispute resolution is contingent upon the two parties falling through with the exit plan, and the Supreme Court approving it.
The Mistrys have 18.4 per cent stake (worth Rs 1.78 lakh crore) in Tata Sons, which as of March 2020 had free reserves of Rs 45,545 crore. The tax payable to the Centre would consequently be tremendous and would require the Mistrys to sell shares in listed Tata group companies for gathering the amount. It must be mentioned here that the valuation of the stake to the tune of 1.78 lakh crore is a figure put forward by the Mistrys. That there is a dispute between the Tatas and SP Group regarding the valuation of the said stake is a different headache for the two sides altogether. The exit plan, however, would require both the sides to accept middle ground, which too would reap immense dividends in the form of taxes for the Centre.
On the other hand, Tatas had told the Supreme Court in September that they were ready to buy the stock (of 18.4 per cent)themselves. But both the disputants think differently of the valuation of the SP Group’s stake in Tata Sons. Court filings peg the value of the stake at 1.5 trillion rupees ($20.3 billion), but if the Tatas buying SP group stake is agreed to, it will be a crude business deal and would eventually depend on which party strikes the harder bargain.
The exit plan of SP Group seems to be the one which will be approved for resolving the dispute between the two sides. If that is the case, the Centre would end up getting cash-rich due to the dispute between the two Parsi business behemoths – Tatas and Mistrys.