In a big reprieve for Nokia, the Delhi High Court today lifted the freeze on the Finnish company’s assets in India, removing a major hurdle in the transfer of the firm’s Chennai handset plant as part of the $7.2 billion global sale of its mobile phone business to Microsoft.
On Thursday, the court vacated the stay on the sale of assets subject to the company depositing “at least Rs 2,250 crore in escrow account” within one month of the Microsoft deal. The court has also held that the amount deposited may vary according to the valuation of the assets made during the deal. The amount is to be adjusted towards payment to be made to the Income Tax department depending on the outcome of the litigation regarding Nokia’s tax liability.
“The final outcome is uncertain and not free from doubt. Even if the matter is decided against Nokia India/ Nokia Finland, the quantum of demand itself in respect of deduction under Section 40(a)(i), interest and penalty including penalty under Section 271C/271(1)(c) of the Act would depend upon several factors. These may take their own time to decide,” said the bench of Justices Sanjiv Khanna and Sanjeev Sachdeva in its order on Thursday.
The issue had become a major stumbling block for the deal between Microsoft and Nokia, threatening to complicate the deal by risking the exclusion of the Indian assets from the sale. In March, Nokia was served with a tax demand notice of about Rs 2,080 crore for five fiscal years starting from 2006-07 for not withholding TDS on royalty payments to its parent company.
Subsequently, through an order issued on September 25, 2013, the Additional Commissioner of Income Tax had attached the assets and bank accounts of Nokia India, including its factories in Chennai “in light of the fact that Nokia India had remitted Rs 3,500 crore as dividend to Nokia Finland” without paying proper tax on the income. The Finnish company had then approached the Delhi HC for lifting the freeze.
In its plea Nokia India had argued that the freeze on the assets could negatively affect the deal between Nokia Finland and Microsoft International. The company had argued that Microsoft International had made it clear that it is only interested in purchasing assets etc. provided approvals are granted by the relevant authorities.
Nokia Finland had also assured the court that it would be jointly liable and shall pay tax