Nokia India might end up with a smaller tax bill than the Rs 21,153 crore, being claimed as existing and anticipated liability if it agrees to pay taxes on the royalty paid to Finnish parent for seven years from 2006-07.
The eventual amount could be Rs 14,200 crore or less as the current claim is based partly on disallowing the royalty payments made by Nokia India to its parent, as a valid expense. The Director General of International Taxation’s (DGIT) claim of R10,569 crore, on the income Nokia Corporation earned in India, by way of software sales to its Indian arm, could stand reduced to Rs 8,657 crore. This would happen in the event Nokia India pays the tax on the royalty, which would then be treated as an expense while calculating the tax liability. An email query sent to Nokia on Tuesday remained unanswered till the time of going to the press.
Meanwhile, the fate of the former’s factory in Chennai hangs in balance. Company officials said that in the event the tax department does not lift the freeze on the assets of the factory by December 12, by which time they are required to be transferred to Microsoft Corporation as per their global deal, it would have no option but to continue the operations as a contract manufacturer to Microsoft. However, officials said that the outer limit for the same would be 12 months after which they may have to wind up the unit. The uncertainty can become acute if Microsoft declines any proposal of a contract manufacturer. Sources said clarity would emerge after the verdict of the Delhi High Court where hearings continue on Wednesday.
In the documents the income tax department filed in the Delhi High Court, it has claimed that the benefit of tax-paid-royalty being allowed as a deduction will be available only in the year it is paid and not past years, but much of the tax claim raised by the department refers to Nokia’s expected future liability.
“Royalty, on which tax is deducted at source, is an expenditure that is ordinarily eligible for deduction while calculating the taxable income of an assessee in the year the tax is paid. The IT department may be suggesting that if tax is paid in 2013-14 or in future years, the royalty paid may be eligible for deduction in those years,” said a leading tax expert, who asked not to be named.