IT department allowed to claim Rs 1,090cr from IBM India

The Karnataka High Court on Tuesday paved the way for the income tax department to collect Rs 1,090 crore from IBM India as tax dues for assessment year 2008-09. On January 7, the Income Tax Appellate Tribunal had stayed the demand to pay the full amount subject to IBM paying Rs 50 crore. The high court has now put a stay on the tribunal’s order.

The income tax commissioner said in his application to the high court that the tribunal’s order for depositing Rs 50 crore comes only to 4.5% of the total demand. The application said that the tribunal’s order “has caused financial hardship and irreparable injury to the exchequer”. The income tax commissioner alleged that the tribunal arbitrarily proceeded to pass an interim order of stay of recovery only on the basis on the submission made by the assessee (IBM India).

Sources privy to the development said IBM India had not yet appealed against the order. Asked for a comment, an IBM spokesperson said the company would “not comment on current proceedings”. IBM India had filed a return of income for the assessment year 2008-09 declaring a total income of Rs 38.6 crore.

Since the company had entered into transactions with its own group entities overseas, the matter was referred to the transfer pricing officer (to determine the appropriateness of the prices factored into the transactions with international group entities). The transfer pricing officer determined the transfer pricing at an amount that was Rs 730 crore more than was previously calculated.

The I-T assessing officer also disallowed various deduction claims made by IBM India. IBM had claimed deductions of Rs 543 crore under Section 10A of the Income Tax Act. The assessing officer noted that IBM had units under the STPI scheme, which are eligible for tax deductions under Sec 10A, and also had units outside the STPI scheme, but the company had not maintained separate books of account for these units and hence the deduction claim could not be entertained.

The tribunal is still looking into the merits of the case. If it eventually determines that IBM is in the right, the I-T department will have to refund the full amount with interest.

Tax authorities have in recent times been aggressively pursuing tax cases. On Tuesday, the Financial Express reported that the Bangalore branch of the Customs, Excise and Service TaxAppellate Tribunal had directed Hewlett-Packard India to pay Rs 120 crore by March 18 as an initial pre-deposit in an on-going case of duty evasion / under valuation where HP could end up paying over Rs 2,000 crore.

Some of these cases relate to transfer pricing issues, and IT industry body Nasscom has been asking the government to lay down clearer rules on transfer pricing in order to reduce litigation.