IBM knocks Karnataka HC door over Rs 5,357-crore Income Tax notice

Written by fe Bureau | Bangalore | Updated: Feb 7 2014, 17:20pm hrs
IBMThe dispute between IBM and I-T dept goes back to 2011 when the authorities first raised a tax demand of Rs 1,090 cr. AP
IT major IBM India has moved the Karnataka High Court to challenge the income-tax departments notice amounting to Rs 5,357 crore, slapped on it over charges that it had allegedly suppressed revenue under the Software Technology Park of India (STPI) scheme for the 2008-09 fiscal.

In an e-mailed response to FE on Thursday, IBM India said, "The Draft Assessment issued by the India Tax Authorities in October 2013 ignores fundamental accounting and tax principles and IBM is seeking relief from the high court."

The dispute between IBM and the I-T department goes back to 2011 when the authorities first raised a tax demand of R1,090 crore. The allegation was that the US-headquartered tech giant had not maintained separate accounts for income earned through exports from its establishments in STPI and Special Economic Zones (SEZs).

Under regulations, companies engaged in export of software are given 100% income tax exemptions for units operating in the STPI and SEZ zones. These fall under the Section 10A & 10B of the I-T Act 1961 for STPI and 10AA for those in SEZ.

The I-T department, however, contested the various deduction claims made by IBM, stating that the company had not maintained separate books of accounts, for units coming under the STPI/SEZ scheme.

IBM had then challenged the notice before the Income Tax Apellate Tribunal which stayed this order subject to payment of R50 crore. However, in January 2013, the Karnataka High Court set aside the Tribunal's order and allowed the I-T department to collect the tax dues worth R1,090 crore.

IBM had earlier stated that it does not agree with the tax department's claims and will aggressively defend itself through the appropriate judicial process.Fundamental to IBMs culture and business model is that we act with integrity wherever we do business. We have demonstrated our commitment to integrity since we began operations in India. IBM has taken this tax dispute for judicial recourse," the company had said.

Besides, IBM there have been other technology companies in India, such as Infosys, Wipro and iGATE, which have been served notices by the income-tax department for different kinds of claims and they are at various stages of jurisdiction.

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