Court allows Nokia sale on parent’s guarantee

Dec 13 2013, 13:16 IST
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The court has asked it to deposit Rs 2,250 crore in an escrow account as an interim payment (Reuters) The court has asked it to deposit Rs 2,250 crore in an escrow account as an interim payment (Reuters)
SummaryIn case Nokia India loses case, tax liability will be Nokia Finland’s

resident of another contracting state. Further, Nokia Finland was ready to furnish a letter of guarantee and in fact even submitted a draft to facilitate the sale.

“Closing down or keeping out Nokia India, when Nokia Finland is globally transferring and disposing of its hand devices/mobile phones business, may not be the sound and considered decision or even in the interest of revenue as there could be a sharp decline in the market value of the assets of Nokia India,” justices Sanjiv Khanna and Sanjeev Sachdeva said in their 36-page order.

“There would be few purchasers and invariably in such sales, proceeds are frugal. The respondents (IT department) themselves are not sure of the market value of the assets and have not undertaken any calculation or examined what will be the consequences in case Microsoft International does not take over the Indian assets,” the bench said.

Sanjeev Sabharwal, senior counsel for the income tax department, termed the order as balanced. "It is a fair order under the circumstances, which has balanced the equities and in fact have made Rs 3,500 crore repatriated as dividend to be brought back into India by Nokia Corp, in case tax liabilities of Nokia India are more than Rs 2,250 crore.”

“The question before the HC was the quantum of anticipated demand it should demand from Nokia by way of guarantee to protect the tax administration's interest. As I understand, Nokia in its pleadings before the HC had offered the initial amount of 2,250 crore as security and I wonder what was the tax administration's wisdom to seek sums in multiples of the amount by adding penalties and double disallowance. The administration by doing so lost an opportunity to build goodwill with an ambassador of India who has been an early investor,” said Mukesh Butani, managing partner, BMR Legal.

Thursday's order pertains to only the lifting of the freeze on the factory to help materialise the sale. The case relating to the legality of the tax claim by the income tax authority will carry on separately. In case Nokia loses out, the liability could stretch between Rs 6,450 crore and Rs 21,000 crore if fines and interest are taken into account along with existing and future liabilities.

The income tax department has claimed tax from Nokia India for royalty payments made to the parent Finnish firm for five fiscal years since 2006-07. The demand of Rs 2,080 crore was

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