Between them, the director general of income tax (international taxation) (DGIT) and chief commissioner of income tax (CCIT) have raised an existing and anticipated tax demand of Rs 21,153 crore on Nokia India Private Limited (NIPL) and Nokia Corporation.
The DGIT has raised a demand of Rs 10,569 crore against NIPL and Nokia Corporation under Sections 201(1) and 201(1A) of the Income Tax Act in the case of NIPL and Section 271(1)(c) in the case of Nokia Corporation. The CCIT has asked the Indian entity pay an amount of Rs 10,584 crore. Both of these demands are inclusive of the penalties levied on the two firms.
“Since NIPL had made remittance to Nokia Corporation without withholding tax at source, TDS default was detected in respect of royalty payments giving rise to the above determined liabilities and expected future liabilities in respect of seven years...,” the application filed by the additional commissioner of I-T before the Delhi High Court on November 26 says.
The DGIT has assessed NIPL’s liabilities at Rs 2,649 crore on the basis of the failure to deduct tax at source on the export of software and levied a penalty of Rs 1,912 crore, taking the total Rs 4,561 crore. In addition the DGIT could raise, after the assessment is finalised, a penalty added of Rs 6,008 crore. This adds up to Rs 10,569 crore.
In respect of the assessment proceedings being carried out by the CCIT against Nokia India, a tax liability of Rs 4,292 crore has been raised on the ground that disallowance is anticipated on account of failure of Nokia India to deduct royalty payments. Additionally, an interest liability of Rs 2,000 crore has also been levied, taking the total to Rs 6,292 crore.
Alongside this interest, a penalty of Rs 4,292 under Section 271 (1) (c) of the I-T Act has also been levied, which pushes up the anticipated demand including interest and penalty to Rs 10,584 crore.
The ACIT has also commented that the anticipated tax liability on account of capital gains tax has not been taken into account at all, which is also bound to be a substantial amount. The ACIT has also drawn attention to the fact that the Microsoft-Nokia agreement has undergone two amendments without there being any independent valuation of assets by a third party. "The decision of Microsoft Corporation to not purchase equity shares of Nokia Corporation and to purchase its assets only which are already attached by the department is a convenient coincidence and is an internal collusive agreement”, the ACIT in its application said.