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TMI Blog2013 (12) TMI 613X X X X Extracts X X X X X X X X Extracts X X X X ..... the following assets, properties and bank accounts of Nokia India stand provisionally attached: "2.6 In view of the above, I am of the considered opinion that for the purpose of protecting the interests of revenue, it is necessary to attach provisionally u/s 281B of the Income Tax Act, 1961 the following assets/properties/bank accounts of the assessee company, for which prior approval has been accorded by the Commissioner of Income Tax, Delhi-V, New Delhi vide letter F. No. UT/Delhi-V/2013-14/1390 dated 24.09.2013:- A. All book debts including Trade Receivables, Short Term Loans & Advances and Long Term Loans & Advances appearing in the books of accounts of the assessee company as on date. B. Ownership/Leasehold rights in respect of the following immoveable properties including land and building to the extent of the interest of the assessee company in the property :- (i) No. A-1, Nokia Telecom SEZ, S1PCOT Industrial Park, Sriperambudur, Chennai, Tamilnadu - 600 001. (ii) No.4, Nokia Telecom SEZ, Phase-3, National Highway No. 4, Sriperambudur, Chennai, Tamilnadu 600 001. (iii) 392/1, Green Gardens, Anna Nagar East, Chennai, Tamilnadu - 600 001. (iv) No. 2-A, Jupiter Block, 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on which additions are anticipated on account of Survey 1 2006-07 15.15 5.00 Disallowance u/s 40(a)(i) of the Act is anticipated on account of non-deduction of TDS u/s 195 on royalty payments for software licensing representing the payee's income deemed to accrue/ arise in India u/s 9(1)(vi) of the Act, being projected as raw material purchased by the assessee company. 2 2007-08 1484.30 499.00 3 2009-10 2336.51 786.00 4 2010-11 2770.59 933.00 5 2011-12 3693.90 1243.00 6 2012-13 1577.33 531.00 Total Demand 3997.00 The above mentioned estimated additions do not include additions on the basis of transfer pricing adjustments, adverse findings in respect of which have also been noticed during the course of survey u/s 133A as referred to above. Besides, the quantum of demand will increase further once the interest u/s 234A/B/C of the Income Tax Act and penalty as applicable is also levied in the case of the assessee company. 2.3 Position of assets of the assessee company as on 31.03.2012 is as follows: S.No. Asset Balance/Value (in Rs. crores) 1 Total Fixed Assets 586.30 2 Inventories 928.60 3 Trade Receivables 6592.20 4 Cash an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sought to be enforced by curtailing the period of 30 days under Section 156 of the Act, to 5 days. It appears that similar attempt was made in respect of financial year 2009-10. These orders were made subject matter of challenge before the High Court in several writ petitions including WP(C) No. 2004/2013. By interim order, dated 22nd March, 2013, relying upon the decision of this court in Sony India Ltd. vs. Commissioner of Income tax (2005) 276 ITR 278 (Del.), the respondents were restrained from taking coercive measures, for recovery of demand. The court also recorded statement on behalf of Nokia India, on instructions, that they would refrain from transferring or remitting anything out of India except in the normal course of business till the next date of hearing. These writ petitions were disposed of, vide order dated 17th April, 2013 with the direction that the demands shall be enforced after the normal period of 30 days. 8. Subsequently, another set of writ petitions including WP(C) No. 2402/2013 along with applications for stay for recovery of demands under Section 201/201(1A) were filed. It was directed that till the pending first appeals are heard by the Commissioner (Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew and recording the aforesaid facts, the following interim directions were issued: "11. Noticing the fact that the petitioner is an operating and a running company, we pass the following interim order till the next date of hearing: (1) The petitioner will not surrender the lease hold rights or transfer the ownership rights in respect of any of the immovable asset or transfer the fixed asset to any third person. (2) The petitioner will be entitled to receive debts created receivables, loans and advances but the amount so received will be deposited in the bank accounts mention in sub-para D of para 2.6 of the impugned order. (3) The petitioner will not transfer, sell or alienate movable plant or machinery located in the immovable properties mentioned in Clause B of para 2.6 of the impugned order. (4) The petitioner will be entitled to operate the bank accounts in normal course of business and will file monthly statement of bank accounts with the assessing officer in hard copy as well as by sending details via e.mail at the address which may be provided by the assessing officer to the petitioner. (5) The petitioner before repatriating any money abroad will inform the assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... soft International has made it clear that it is only interested in purchasing assets etc. provided approvals are granted by the relevant authorities and they are also aware of the liens etc., on the assets. It has been agreed that in case necessary approvals are not received, Microsoft International shall not purchase the Indian assets. Paragraphs 6(f) to (i) of the application, read:- "f. It has been clearly understood that in case the purchase of Indian assets does not go through, Microsoft International would have to reallocate production volumes of phones to other manufacturing facilities (outside India, to jurisdictions where it would as a consequence of the transaction have its own manufacturing facilities) and this will be achieved within 12 months of the closing of the global deal between Microsoft International and Nokia Corp. In the meantime, if so required by Microsoft International, the Petitioner/Applicant will act as a temporary transitional contract manufacturer of phones for Microsoft International and in no event shall this arrangement continue beyond 12 months from the closing of the global deal between Microsoft International and Nokia Corp, unless Nokia Corp wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l not fetch substantial value. The applicant has offered to deposit surplus proceeds realized after adjusting outstanding liabilities and obligations from Microsoft International on sale of assets in India with a minimum deposit of Rs.2250 crores in an escrow account to meet liabilities, if any, of the Income Tax Department. The said deposit will be made within one month of the confirmation of sale. It is stated that the Income Tax Department will have first lien. 14. The respondents have not accepted the suggestion or offer made by Nokia India. They have questioned bonafides of Nokia India and Nokia Finland, alleging that agreement dated 2nd September, 2013 was prior to the interim order passed on 26th September, 2013 but the said details were not brought to notice. Decision of Microsoft, not to purchase equity shares of Nokia Corporation and to rather purchase assets, is a convenient coincidence and an act of internal collusion between the two. Trigger date i.e. 12th December, 2013, it is stated that, is wholly irrelevant and the Revenue cannot be compelled to take a decision in haste without ascertaining complete facts. Furthermore, Nokia India on 26th September, 2013 had state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Section 281B which virtually had the effect of seizure of bank operations, dishonor of cheques etc. 16. At this stage, we only record that prima facie we find that there is partial truth in the allegations made by both sides against each other. In fact, the oral submissions made on behalf of the applicant at the time of initial hearing were to the effect that the offer made by them was final, give it or take it after. It is a favour and if the offer made is rejected, consequences and warnings as stated will follow. The said statements have certainly not helped and are completely unexceptionable. As noticed below, the applicant and Nokia Finland, have benefitted and should not be oblivious to the profits made from the India operations. Taxes in India, as per law have to be and must be paid. Every tax payer or person residing in India or doing business with Indian residents must comply with the law, meet their obligation and share their due tax burden. Of course they are entitled to and will be dealt with fairly and in a just manner. In subsequent hearings, the applicant has sought to clarify that the impression given during the earlier hearings was not their intention and both N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m of tax demand or the project demand before us has been contested. Respondents during the course of hearing before us had filed the following chart:- (1) Intl Tax Tax (A) Interest (B) C=A + B Penalty (D) Total (C+D) (i) NIPL (201 + 201A) 1912 737 2649 1912 4561 (ii) Nokia Corp 1912 1330 3242 1912 5154 (2) CIT-V (iii) NIPL [40(a)(i)] 4292* 2000 6292 4292 10584 Total (i)+(ii)+(iii) 12183 8116 20299 CIT-V (iv) NIPL [40(a)(i) 2274** 995 3269 2274 5543 Total (i)+(ii)+(iii) 9160 6098 15258 [ALL FIGURES IN Rs. CRORE], *without S.10AA deduction, **with S10AA deduction." 20. The aforesaid figures, it is submitted on behalf of the applicant are highly debatable, overlapping and inflated to cause prejudice. The figures do overstate the projected tax demand to some extent. Besides the respondents presume and assume that they shall succeed on all accounts, fair and square. The respondents have taken the figure of Rs.1912 crores twice, as payable by Nokia India as tax at source whereas if this payment is made by Nokia India, Nokia Finland woul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otal demand of Rs.10584 crores for addition under Section 40(a)(i) of the Act. Another penalty of Rs.1600/1912 crores can be imposed as per the respondents under Section 271C of the Act for failure to deduct TDS. 23. As per the computation filed by the respondents, the Nokia India would be liable to pay interest as noticed above of Rs.2000 crores on tax demand of Rs.4292 crores and Rs.737 crores on late deposit of TDS. Nokia Finland may not be liable to pay tax, if TDS is paid by Nokia India, but they would still be liable to pay interest as per calculations made by the respondents of Rs.1313 crores and also penalty under Section 271(1)(c) of the Act of Rs.1912 crores (amount may be less in case the tax payable is Rs.1600 crores and not Rs. 1912 crores). 24. The cascading effect of the issue and impact of Section 40(a)(i) of the Act is apparent. It is a stringent and burdensome provision. However, in case contention of the respondents is rejected, and the stand of the applicant, that the payment made was not royalty is accepted, the entire calculation would be futile and no amount would be payable. 25. In the aforesaid chart, the respondents have also computed figure of the tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der Section 201/201(1A) are pending before the tribunal and the decision on the said aspect will have a relevant and vital bearing on the assessment/ re-assessment proceedings against Nokia India and Nokia Finland. But the aggrieved party is likely to file appeals before the High Court and then the Supreme Court. We have referred to the orders and issues raised to highlight and point the controversy and that the questions and issues are debatable and will require indepth adjudication. We also do not wish to express any opinion on merits as this can prejudice to a party. 27. Section 281B of the Act is a provision which permits provisional attachment in respect of property belonging to the assessee during pendency of the proceedings for assessment or reassessment when the Assessing Officer is of the opinion that it is necessary to do so to protect the interest of the Revenue. He requires permission/previous approval of Commissioner/Chief Commissioner etc. The provisional attachment is effective for a period of six months. But Commissioner or Chief Commissioner or Director for reasons to be recorded in writing can extend the aforesaid period provided the total period of extension sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As a responsible corporate citizen committed to paying taxes in accordance with applicable national and international laws and treaties, we are obliged to pay the income tax liabilities which may ultimately be found to be payable by us pursuant to the aforesaid proceedings after exhausting all legal remedies available to us and without prejudice to our rights under the Indo-Finland DTAA (and more specifically Artile 26 of the said DTAA) and any other applicable treaty or agreement. 5. Signed in Espoo, Finland on 11th December, 2013 NOKIA CORPORATION "29. During the course of hearing, learned counsel for the applicant accepted and agreed that Nokia Finland shall make payment of tax, interest and penalty if due and payable as determined under Section 201/201(1A) and the relevant provisions; the tax liability interest and penalty of Nokia Finland, if determined, due and payable. They have expressed their inability to furnish any such letter of guarantee in respect of tax demand which may become due and payable by Nokia India pursuant to any assessment or reassessment on account of invocation of Section 40(a)(i) of the Act. 30. At this stage, it would be relevant to refer to Articl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sets is Rs.586.30 crores (The applicant had protested against the valuation made by the respondents during the course of hearing on 26th September, 2013 and submitted that the break-up method was not correct and was not reflective of true and correct position. Respondents had pleaded to the contrary. However, now their stands are reverse.) 34. Nokia India, in the manufacturing unit, have directly employed 8000 workers and they indirectly, it is claimed, are providing employment to another 25000 persons. Their employment is at stake and this fact cannot be ignored. Neither can we ignore the fact that Nokia India had repatriated Rs.3,500 crores, though they were aware that there was a dispute and would be claims of the Income Tax Department. As of now, the tax demand or issues are inchoate and it may take a considerable time before the issue is finally settled. Possibly, the dispute will be taken to the Supreme Court for final adjudication and this is a time consuming process. 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and payable under Section 201/201(1A), interest and penalty thereon. (ii) Nokia Finland shall be liable to pay taxes including penalty and interest due and payable by them as determined under the Act i.e. the Income Tax Act, 1961. (iii) Nokia India/Nokia Finland will deposit atleast Rs.2250 crores in an escrow account, details of which will be furnished to the respondents with one month of the agreement with Microsoft/Microsoft International. The amount of deposit will go up or increase upon higher consideration being received from Microsoft/Microsoft International, as per valuation report. (iv) Copy of the valuation report will be furnished to the respondents within 15 days of acceptance. (v) Rs.2250 crores or the higher amount, which will be deposited in the escrow account, at the option of the respondents may not be adjusted or appropriated against tax demands including interest and penalty relating to TDS/order under Section 201/201(1A) or tax demands determined and payable by Nokia Finland. Respondents can insist that the escrow account shall be first adjusted or appropriated towards demand pursuant to assessments under Section 143(3)/147 of the Act against Nokia India. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount has been fixed as dividend of Rs.3,500 crores stands paid by Nokia India to Nokia Finland. Demand under clause (ii) stands excluded as the said liability is personal to Nokia Finland. This limit of Rs.3500 crores does not apply to demand under clause (i). (x) Microsoft/Microsoft International will not be liable to pay tax dues of Nokia India and Nokia Finland, except when any amount due and payable as per the provisions of the Act. (xi) In case of non-compliance of clauses (i) and (ii) above or non-payment of the settled demand in terms of clause (ix), Revenue can approach the Court for appropriate orders. In such circumstances, the Court will have the power to take action or directions as may be justified and appropriate steps to ensure compliance. (xii) Nokia India/Nokia Finland will continue and pay Rs.700 crores in installments in terms of the order dated 21st June, 2013 and this amount has no co-relation with Rs.2250 crores or higher amount, which will be deposited in the escrow account. (xiii) Nokia India/ Nokia Finland will be entitled to contest the income tax proceedings and demands under clauses (i) and (ii) against Nokia India/Nokia Finland which can be enforced ..... X X X X Extracts X X X X X X X X Extracts X X X X
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