Nokias Rs 2,250-cr escrow a/c offer not acceptable, I-T dept tells Delhi HC

Written by fe Bureau | New Delhi | Updated: Dec 3 2013, 11:06am hrs
The income tax department on Monday told the Delhi High Court that Nokia Indias proposal to deposit R2,250 crore in an escrow account in a bid to secure the taxmans existing and anticipated tax demands of R10,580 crore is not acceptable. Nokia India had made this offer hoping that the tax department would lift the freeze on its Chennai unit, which it plans to transfer to Microsoft by December 12.

The departments claim of R10,580 crore is inclusive of interest and penalty on Nokia Indias multiple international, transfer-pricing transactions.

The HC, in order to determine liabilities of the Nokia India, has asked it to file documents depicting its entire trade liabilities and the tax amounts paid by it in the last eighteen years. The matter has been posted for further hearing on December 9.

Nokia India, in earlier hearings, had also offered to deposit the entire sale proceeds of the Nokia-Microsoft global sale in a bank account, submitting that the said amount will be subject to the demands made by the department. It had also said that if the freeze was not lifted, the asset transfer to Microsoft could not take place by December 12. In that case, it would not be left with any option but to run the factory as a contract manufacturer. It had also said that in that event, it may even have to wind up its operations over the next 12 months.

Appearing for the Nokia India, senior advocate Harsh Salve said that Nokia plans to shut shop and exit the mobile manufacturing business, irrespective of whether the Indian assets are transferred to Microsoft or not. Urging that the department will be better off if it allows the deal to go through, Salve argued that the assets of Nokia India will have value, only if they are in use and not when they are being auctioned.

However, the bench comprising justice Sanjiv Khanna and justice Sanjeev Sachdeva raised questions on Nokia Indias intention to secure its tax liabilities in India, saying that even when Nokia India was aware of the global deal, cash dividend amounting to R3,500 crore had been sent out by Nokia India to its parent company. Subsequently, the taxman had levied dividend distribution tax of R595 crore on the company for transferring the said amount. This resulted in a cumulative outgo of R4,100 crore from the accounts of the Indian handset manufacturer, as a result of which the taxman had knocked the doors of the high court, which, in response, attached immovable assets of the company.

The HC also pointed out that Nokia India had varied from its categorical stand that they will continue with the manufacturing activities in the Indian facility, when its fixed assets were provisionally attached.

Salve said that Nokia India was entitled to repatriate the dividend and that in case of such a slump sale, cash had to be removed from Nokia Indias operations.