Nokia India's offer to pay Rs. 2,250 crores rejected by IT department

The Income Tax (IT) Department on Monday told the Delhi High Court that the offer of Finnish mobile maker Nokia to pay a minimum deposit of Rs. 2,250 crores to it, out of the company's total tax liability of nearly Rs. 6,500 crores, is not acceptable.

Nokia India, however, stuck to its offer and said it is for the department to decide if they are better off with the proposed amount or without it.

A bench of justices Sanjiv Khanna and Sanjeev Sachdeva observed "you (Nokia) are offering nothing".

To this, senior advocate Harish Salve, appearing for Nokia, said "we are not in a position to offer more" and added that Rs. 2,250 crores is minimum depending upon the outcome of its deal with Microsoft.

Earlier, the mobile handset-maker firm had sought lifting of a stay on transfer of its assets in India saying the court's injunction will jeopardize the sale of its Indian arm to Microsoft under the USD 7.2 billion global deal.

The bench listed the matter for December 9 when Nokia has to give details of its assets and liabilities as well as how much tax it has paid here.

The bench also questioned Nokia India's intention behind sending Rs. 3,500 crores to its parent company as dividend of 18 years and asked why the amount should not be brought back here.

The bench made the observation after Nokia said it is exiting the mobile manufacturing business, globally, irrespective of whether its plant in India is sold.

The bench said that earlier Nokia had said it will continue manufacturing of mobiles here and now it is saying its unit in India will be wound up eventually.

"Why did you transfer Rs. 3,500 crore abroad? Was it not your intention not to keep liquid assets here? You had Rs. 4,100 crore cash here (dividend and tax combined). You repatriate it.

"When they (IT department) attach your bank accounts, you come here. That time you were categorical that manufacturing (here) will go on. Now, there is a change in your stand. So shouldn't the amount (that was repatriated) be brought back to India?" the bench said.

To this, Salve told the court that the amount was repatriated as dividend of 18 years and added that if Nokia were selling its shares to Microsoft then the Indian unit would have continued.

He also said that in a slump sale like this (Nokia-Microsoft deal) cash has to be removed.

The bench also said Nokia is not willing to budge from its stand to which the company responded that "Microsoft is not willing to budge an inch".

Nokia also said the IT department is wrong if they think they are better off with Microsoft not buying and the assets being auctioned off.

It also said its assets in India have "value in use but not value in sale" and the only person who may use it is Microsoft.

"Either they will buy our plant or they will source phones from elsewhere. If Microsoft gets cheaper phones in another country, it will go there," Salve told the court.

"Microsoft may use us or they may not. We have an outer window of 12 months," he said

Nokia said it has a current net asset of Rs 2,347 crores.

Earlier, the high court had asked the IT department to take a decision on Nokia's offer to pay a minimum deposit of Rs 2,250 crore.

The company had submitted that once the sale of its business to Microsoft is completed, it is willing to pay a minimum deposit of Rs 2,250 crore as tax and the amount could be higher depending upon the final sale price.

Nokia had said if the sale of its Indian unit in Chennai does not happen, the company will wind up its operations here over a period of 12 months and the assets here will have little value.

Taking note of the plea of the firm, the court had earlier asked the IT department to respond by November 28 to the application that has sought modification in the September 26, 2013 order by which Nokia has been restrained from selling or transferring its ownership rights in India relating to movable and immovable assets.

The high court had, however, observed "any successor would be bound to pay the tax liabilities of its predecessors as per statutory provisions".

"Immediately after sale, irrespective of the sale price, we will deposit Rs 2,250 crore. If the sale price is much higher, we will deposit the entire surplus after adjusting outstanding liabilities, excluding income tax liabilities," Nokia's counsel had earlier said.

In its plea, Nokia has said it intends to sell its assets in the country as part of the sale of its entire global mobile phone manufacturing business to software giant Microsoft but without the vacation of stay on sale of its assets, the deal is not possible.

The firm has also said Microsoft is interested in purchasing Nokia India's assets only if relevant approvals have been obtained from the appropriate authorities.

The issue relates to the IT department's Rs. 2,080 crores tax demand notice to the Finnish mobile firm.

The alleged tax evasion pertains to royalty payment made against supply of software by its parent company, which attracts a 10 percent tax deduction under the Tax Deducted at Source (TDS) category.