Idea Cellular has raised fresh heckles for Tata Industries with the
income tax department accusing it of not deducting tax at source on $150 million
it paid to AT&T Cellular for acquiring its stake in the company besides
avoiding capital gains tax on a part of the equity the Tata group company sold
to Birlas.
While a Tata
spokesperson said the company had submitted all the details to the authorities,
a similar dispute between the I-T department and Vodafone is holding a final
decision on the notice to Tatas, which was issued a few months ago. The
department has served a notice on Vodafone for its failure to deduct $2 billion
tax while acquiring Hutchison's shares in Hutch Essar. Sources said authorities
had also written to Idea a few months ago but no notice has been served on
Birlas.
The I-T department,
which woke up to the $150 million transaction between Tatas and AT&T
Cellular (P) Ltd Mauritius nearly two years after the Indian conglomerate
acquired 75.5 lakh shares from the US giant, issued a notice under section 201
of the I-T Act.
The department
said that as per law, Tata Industries should have sought department's permission
before remitting the amount, as was done by AV Birla group company Indian Rayon,
which also acquired AT&T's equity at Rs 18 per share in a deal worth $150
million.
While accusing Tata
of unilaterally deciding that the income of US companies was not taxable in
India, the department said with AT&T's source of income being in India and
an indirect transfer of capital assets in India, the American company was liable
to pay tax.
Though AT&T had
invested in Idea through Mauritius, the department believes it was primarily a
conduit company and effectively, the US entity invested in India resulting in a
capital gains liability in India.
On
its part, the Tata group has responded by saying that it had purchased shares of
an overseas company (AT&T Mauritius) as direct investment in wholly-owned
subsidiary under the RBI's automatic route, which did not require tax deduction
at source.
The other dispute
with Tatas relates to its sale of Idea shares to Birla group in June 2006. The
deal involved sale of shares to Birla TMT Holdings for a consideration of Rs
2,200 crore and Aditya Birla Nuvo for a little under Rs 700 crore for which
advance tax of around Rs 500 crore was paid.
There was a third transaction
too which involved the sale of 37 lakh shares by Apex Investment Mauritius
Holdings, a wholly-owned subsidiary of Tata Industries, for a consideration of
Rs 1,500 crore. AT&T Cellular was renamed as Apex Investment after the deal
with the Tatas in 2005.
Tatas
did not pay capital gains tax on this transaction arguing that capital gains, if
any, will accrue to the Mauritius company which was exempt from paying taxes in
India on account of the double taxation avoidance agreement between the two
countries. The stand has been questioned by the tax department which is expected
to issue an order in the next few weeks.
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