1. The Company was incorporated on 19 March 1986. The Government of
India vide its letter No. G-25015/6/86OC dated 27 March 1986,
transferred all the assets and liabilities of the Overseas
Communications Service (OCS) (part of the Department of
Telecommunications, Ministry of Communications) as appearing in the
Balance Sheet as at 31 March 1986 to the Company with effect from 01
April 1986. As per the letter no G-25015/6/86-OC dated 23 October 2001
of Government of India, Department of Telecommunications, there was no
requirement to register a formal transfer deed or deed of sale in the
matter of such transfer of assets. During the year 2007-08, the Company
changed its name to Tata Communications Limited and the fresh
certificate of incorporation consequent upon the change of name was
issued by the Registrar of Companies, Maharashtra on 28 January 2008.
2. Capital reserve includes Rs. 205.22 crores in respect of foreign
exchange gains on unutilized proceeds from Global Depository Receipts
credited to Capital Reserve Rs. 203.70 crores in 2000-01 and Rs. 1.52
crores in 2001-02.
3. The Board of Directors have recommended a dividend of Rs. 2 (2010:
Rs. Nil) per share for the year ended 31 March 2011.
4. The Company has an investment of Rs. 474.23 crores (2010: Rs.
474.23 crores) in equity shares and Rs. 139.32 crores (2010: Rs. 139.32
crores) in preference shares of Tata Communications International Pte.
Ltd (TCIPL), Rs. 3.29 crores (2010: Rs. 3.29 crores) in equity shares
and Rs. 118.71 crores (2010: Rs. 118.71 crores) in preference shares of
VSNL SNOSPV Pte. Ltd (SNOSPV) wholly owned subsidiaries. In the
opinion of the management, having regard to the nature of these
subsidiaries'' businesses and future business projections, there is no
diminution, other than temporary in the value of investments despite
the significant accumulated losses.
5. As at 31 March 2011 the proportionate share of pension obligations
and payments of Rs. 61.15 crores (2010: Rs. 61.15 crores) to the
erstwhile Overseas Communications Service (OCS) employees were
recoverable from the Government of India (the Government). Pursuant
to discussions with the Government, the Company had made a provision of
Rs. 53.71 crores (2010: Rs. 53.71 crores) thereby having a net amount
due from the Government towards its share of pension obligations of Rs.
7.44 crores (2010: Rs. 7.44 crores).
6. Pursuant to acquisitions of Tyco Global Network (TGN) and
Teleglobe (TLGB), the Company from 1 April 2006 adopted the Residual
Profits Split Method (RPSM) for recording transactions pertaining to
International Telecommunications Services under its Transfer Pricing
Policy. This policy governs the majority of the transactions between
the Company and its international subsidiaries. The Company''s
subsidiary in the Netherlands is designated as the Central Contracting
Party (CCP) and Transfer Pricing Administrator (TPA).
7. During the previous year, the Company received a favourable order
from Income tax Appellate Tribunal (ITAT) pertaining to financial year
1993-94, which was further supported by a favourable legal advice.
Consequently, the Company had written back the corresponding tax
provision of Rs. 280.01 crores. Interest on the above of Rs. 215.56
crores was included in Rs. 218.28 crores of interest on Income tax
refund reflected as exceptional item in Profit and loss account for the
year ended 31 March 2010. Income tax department has appealed against
this order in the Honourable High Court of Bombay which is yet to come
up for admission.
8. The Company had entered into an agreement with effect from 1
January 2007 with one of its customers for carriage of NLD traffic for
a period of two years. In view of disputes between the parties, the
agreement was truncated with effect from July 2008. The matter was
referred to Conciliation in the earlier period and an award of Rs. 29
crores was made leaving the modalities of settlement to the parties.
During the current year based on the settlement reached with the
carrier, Rs. 26.54 crores is recorded in Revenue from telecommunication
and other services and interest of Rs. 2.46 crores is recorded in Other
income.
9. The Board of Directors of the Company at its meeting held on 31
January 2011 had approved the merger of the Company''s wholly owned
subsidiary, Tata Communications Internet Services Limited (TCISL) with
the Company with effect from 1 April 2010. The Company had obtained the
consent of the shareholders for the merger at Extra Ordinary General
Meeting held on 27 April 2011.
In accordance to the final order dated 20 August 2011 as pronounced by
the Bombay High Court the financials have been revised to reflect the
merger of TCISL with the Company effective 01 April 2010.
In accordance to the said Scheme, the Company has accounted for this
amalgamation in the nature of merger under the pooling-of-interest
method. Consequently:
i. All the assets, debts, liabilities and obligations of TCISL have
been vested in the Company with effect from 1 April 2010 and have been
recorded at their respective book values.
ii. The net asset value of TCISL as on the date of amalgamation was Rs.
15.28 crores as against the investment of the Company of Rs. 384.47
crores. The excess of the cost of investment of Rs. 369.19 crores is
adjusted against the general reserve to the extent of Rs. 78.24 crores,
Rs. 0.56 crores against capital reserve and Rs. 291.51 crores against
the opening profit and loss account.
iii. Consequent to the merger there has been a reduction in the current
tax expense of Rs. 37.97 crores and increase in deferred tax benefit of
Rs. 39.65 crores.
10. In January 2008, an amount of Rs. 295 crores was paid to the
Department of Telecommunications (DoT) under protest, towards payment
of licence fees, interest and penalty demanded by DoT before issue of
certain licences to the Company. Against this, the Company carried a
provision of Rs. 174.15 crores for licence fees and interest thereon
which has been set off against the payment of Rs. 295 crores for the
presentation in the financial statements. The Company has filed a
petition in the Honourable Supreme Court of India challenging the
judgement of The Telecom Disputes Settlement Appellate Tribunal (TDSAT)
relating to the computation of licence fee.
Additionally, the Company has also filed a petition with TDSAT
challenging applicability of penal provisions under International Long
Distance (ILD) and National Long Distance (NLD) licence agreements,
whereby DoT claimed penalty and interest on penalty amounting to Rs.
115.73 crores (included in aforesaid Rs. 295 crores). Consequently, the
amount of Rs.115.73 crores together with the excess licence fee paid of
Rs. 5.12 crores (Payment of Rs. 295 crores as reduced by Rs. 289.88
crores computed by the Company for licence fees, interest thereon and
penalty) totalling Rs. 120.85 crores was reflected as an asset in the
books as at 31 March 2009.
During the previous year, TDSAT accepted the Company''s position and
decided in favour of the Company. However, DoT has filed an appeal in
the Honourable Supreme Court of India challenging the judgement of
TDSAT relating to the waiver of penalty and interest on penalty.
Further, DoT completed the assessment for year ended 31 March 2006 in
the previous fiscal year and adjusted the aforesaid excess licence fee
of Rs. 5.12 crores; as a result, the balance amount of Rs. 115.73
crores (2010: Rs. 115.73 crores) is reflected as an asset in the books
as at 31 March 2011.
11. Revenue from Telecommunication and other Services for the current
year includes Rs. 25.60 crores (2010: Rs. Nil) pertaining to previous
years.
12. Debentures
i. Secured Debentures
During the year 2008-09, the Company issued Rated Taxable Secured
Redeemable Non-convertible Debentures in demat form for cash at par on
private placement basis aggregating Rs. 1,250 crores, IDBI Trusteeship
Services Limited has been appointed as trustee to the debenture issue.
a. Nature of Security
Rs. 1,000 crores, 11.70% debentures (face value of Rs. 1,000,000 each)
are secured by a first legal mortgage and charge on the Company''s
immovable property being the free hold land at Mouje Maharajpura,
Gujarat and Plant and machinery represented by earth stations, network
equipments, Land and sea cables, transmission equipments and other
telecom equipments.
Rs. 250 crores, debentures (interest ranging from 11.00% to 11.25%,
face value of Rs. 1,000,000 each) are secured by a first legal mortgage
and charge on the Company''s immovable property being the free hold land
at Parambur Barracks, Chennai and Plant and machinery represented by
land cable network and equipments.
ii. Unsecured Debentures
During the last year, the Company issued Rated, Unsecured, Taxable,
Redeemable Non-convertible Debentures of face value Rs. 1,000,000 each,
in demat form for cash at par on private placement basis aggregating
Rs. 700 crores.
13. Employee benefits:
Retirement Benefits
i. Defined Contribution Plan
Provident Fund:
The Company makes contribution towards provident fund under a defined
contribution retirement benefit plan for qualifying employees. The
provident fund is administered by the Trustees of the Tata
Communications Employees'' Provident Fund Trust and by Regional
Provident Fund Commissioner. Under this scheme, the Company is required
to contribute a specified percentage of payroll cost to fund the
benefits.
The Rules of the Company''s Provident Fund administered by a Trust
require that if the Board of Trustees are unable to pay interest at the
rate declared for Employees'' Provident Fund by the Government under
para 60 of the Employees'' Provident Fund Scheme, 1952 for the reason
that the return on investment is less or for any other reason, then the
deficiency shall be made good by the Company. Having regard to the
assets of the Fund and the return on the investments, the Company does
not expect any deficiency in the foreseeable future. There has also
been no such deficiency since the inception of the Fund.
Provident fund contributions amounting to Rs. 17.85 crores (2010: Rs.
13.45 crores) have been charged to the profit and loss account.
ii. Defined Benefit Plan
Gratuity:
The Company makes annual contributions under the Employees Gratuity
scheme to a fund administered by Trustees covering all eligible
employees. The plan provides for lump sum payments to vested employees
at retirement, death while in employment or on termination of
employment of an amount equivalent to 15 days salary for each completed
year of service or part thereof in excess of six months. Vesting occurs
upon completion of five years of service.
Medical Benefit:
The Company reimburses domiciliary and hospitalization expenses not
exceeding specified limits incurred by eligible and qualifying
employees and their dependent family members under the Tata
Communications Employee''s Medical Reimbursement Scheme. The scheme
provides for cashless hospitalization where the claims are directly
settled by the Company.
Pension Plan:
The Company''s pension obligations relate to certain employees
transferred to the Company from the Overseas Communications Service
(OCS). The Company purchases life annuity policies from an insurance
company to settle such pension obligations. During the year the Company
has incurred a charge of Rs. 7.00 crores (2010: Rs. 7.77 crores) to
meet the additional pension obligation on account of increase in
Dearness Allowances.
19. Segment reporting
i. Business Segments
Effective 1 April 2010, the Company''s reportable business segments have
been re-aligned into Global Voice Solutions, Global Data and Managed
Services (GDMS) and Others to reflect change in the Company''s Business
and Organization Structure. Accordingly, all network and managed
services in the Company have been aligned to GDMS and Retail Business
have been aligned to Others.
(I) Revenues and expenses, which are directly identifiable to the
segments, have been attributed to the relevant segments. The allocable
enterprise expenses have been allocated on reasonable basis to the
relevant segments. Segment result is segment revenues less segment
expenses. Certain costs including depreciation which are not allocable
to segments have been classified as Other Unallocable Expenses (net).
(II) Telecommunication services are provided utilizing the Company''s
assets which do not generally make a distinction between the types of
services. As a result, fixed assets are used interchangeably between
segments. In the absence of a meaningful basis to allocate assets and
liabilities between segments, no allocation has been made.
20. Related party transactions
i. Names of related parties and nature of relationship
Sr. Category of related parties Names
No
1 Investing Parties (Promoters) Panatone Finvest Limited
Tata Sons Limited
2 Subsidiaries (Held Directly) Tata Communications Internet Services
Limited
(Refer note B-9 Schedule 19)
Tata Communications Banking InfraSolutions Limited
Tata Communications Transformation Services Limited
Tata Communications International Pte. Ltd.
VSNL SNOSPV Pte Ltd
S&A Internet Services Private Limited
Tata Communications Lanka Limited
3 Subsidiaries (Held Indirectly) Tata Communications (Australia) Pty
Limited
Tata Communications (Belgium) SPRL
Tata Communications Services (Bermuda) Limited
Tata Communications (Bermuda) Limited
Tata Communications (Canada) ULC
VSNL International (ITXC) Corp
Tata Communications (America) Inc.
Tata Communications Services (America) Inc. (Upto 31 March 2011)
Tata Communications (Middle East) FZ-LLC
Tata Communications (UK) Limited
Tata Communications (France) SAS
Tata Communications Deutschland GmbH
Tata Communications (Guam) LLC
Tata Communications (Hong Kong) Limited
Tata Communications (Hungary) LLC
Tata Communications (Ireland) Limited
TCPoP Communication GmbH
Tata Communications (Taiwan) Limited
Tata Communications (Italy) S.r.l
Tata Communications (Japan) KK
ITXC IP Holdings S.a r.l
Tata Communications (Nordic) AS
Tata Communications (Poland) Sp. z oo
Tata Communications (Portugal) Unipessoal LDA
Tata Communications (Portugal) Instalacao E Manutencao De Redes LDA
No
Tata Communications (Puerto Rico) Inc
Tata Communications (Russia) LLC
Tata Communications Services (International) Pte. Ltd.
Videsh Sanchar Nigam Spain Srl
Tata Communications (Sweden) AB
Tata Communications (Switzerland) GmbH
Tata Communications (Netherlands) B.V.
BitGravity Inc. (Held through Tata Communications International Pte.
Ltd.) (Subsidiary w.e.f 16 February 2011)
4 Joint Venture United Telecom Limited
Cochin Submarine Cable Depot (INDIA) Private Limited (Under
liquidation)
5 Joint Venture / Associate of wholly owned subsidiary
Neotel (Pty) Ltd. (Held through VSNL SNOSPV Pte Ltd.)
SEPCO Communications Pty Ltd. (Held through VSNL SNOSPV Pte Ltd.)
6 Key Managerial Personnel
Mr. N. Srinath Managing Director and Chief Executive Officer TCL Group
(till 31 January 2011)
Mr Vinod Kumar Managing Director and Group CEO
(w.e.f 1 February 2011)
ii. As lessor:
a. The Company has leased under operating lease arrangements certain
Indefeasible Rights of Use (IRU) with gross carrying amount and
accumulated depreciation of Rs. 84.33 crores (2010: Rs. 84.33 crores)
and Rs. 33.30 crores (2010: Rs. 27.80 crores) respectively as at 31
March 2011. Depreciation expense of Rs. 5.50 crores (2010: Rs. 5.50
crores) in respect of these assets has been charged in the Profit and
Loss Account for the year ended 31 March 2011.
In case of certain lease agreements aggregating Rs. 380.85 crores
(2010: Rs. 331.85 crores) for the year ended 31 March 2011, the gross
block, accumulated depreciation and depreciation expense of the assets
given on IRU basis is not readily determinable and hence not disclosed.
The lease rentals associated with such IRU arrangements for the year
ended 31 March 2011 amount to Rs. 10.65 crores (2010: Rs. 27.74
crores).
In respect of such leases, rental income of Rs. 17.50 crores (2010: Rs.
34.59 crores) has been recognized in the profit and loss account for
the year ended 31 March 2011.
23. Contingent Liabilities and Capital Commitments:
I. Contingent Liabilities:
(Rs. in crores)
As at As at
31 March 2011 31 March 2010
i. Guarantees given on behalf of
subsidiaries (Refer Note 1) 6,493.82 5,512.76
ii. Claims for taxes on income
(Refer Note 2)
a. Income tax disputes where department
is in appeal against the Company. 1,009.60 322.00
b. Income tax disputes where the Company
has a favourable decision in other
assessment years for the same issue 1.79 22.39
c. Income tax disputes other than above 1,696.91 1,448.89
iii. Claims for other taxes 123.30 118.08
iv. Other claims 468.59 495.08
Notes:
1. Guarantees given on behalf of subsidiaries:
The guarantees have been provided in the ordinary course of business
and no liability on the Company is expected to materialize in this
respect.
2. Significant claims by the revenue authorities in respect of income
tax matters relate to deductions claimed under Section 80 IA of the
Income Tax Act, 1961 from Assessment years 1996-97 onwards and
disallowed by the revenue authorities. The Company has contested the
disallowances and has preferred appeals which are pending.
3. The Company has taken appropriate professional advice in respect of
the claims / appeals and has taken all necessary steps to protect its
interest. Based on expert opinion, no provision is required in respect
of these claims / appeals.
5. The Company has issued a support letter to Tata Communications
International Pte Limited (TCIPL), regarding providing financial
support enabling, in turn, TCIPL to issue such support letters to
certain subsidiaries having negative net worth as at 31 March 2011
aggregating Rs. 1,245.71 crores (2010: Rs. 1,508.41 crores) in various
geographies in order that they may continue to be accounted for as
going concern.
The letters of comfort / support mentioned in 4 and 5 above have been
provided in the ordinary course of business and no liability on the
Company is expected to materialize in these respects
6. During the year 2008-09, in terms of the agreements entered into
between Tata Teleservices Ltd. (TTSL), Tata Sons Ltd. (TSL) and NTT
DoCoMo, Inc. of Japan (Strategic Partner - SP), TSL gave an option to
the Company to sell 36,542,378 equity shares in TTSL to the S P, as
part of a secondary sale of 253,163,941 equity shares effected along
with a primary issue of 843,879,801 shares by TTSL to the SP.
If certain performance parameters and other conditions are not met,
should the SP decide to divest its entire shareholding in TTSL,
acquired under the primary issue and the secondary sale, and should TSL
be unable to find a buyer for such shares, the Company is obligated to
acquire the shareholding of the S P, at the higher of fair value or 50
percent of the subscription purchase price, in proportion of the number
of shares sold by the company to the aggregate of the secondary shares
sold to the S P, or if the SP divests the shares at a lower price pay a
compensation representing the difference between such lower sale price
and the price referred to above.
Further, in the event of breach of the representations and warranties
(other than title and tax) and covenants not capable of specific
performance, the Company is liable to reimburse TSL, on a pro rata
basis, up to a maximum sum of Rs. 548.50 crores. The exercise of the
option by SP being dependent on several variables, the liability, if
any, in this respect is remote and indeterminable.
II. Capital Commitments:
Estimated amount of contracts remaining to be executed on capital
account, not provided for and loan commitment to wholly owned
subsidiaries for Rs. 2,772.94 crores (2010: Rs. 2,489.86 crores).
26. United Telecom Limited (UTL) is a Joint Venture between the
Company, Mahanagar Telephone Nigam Limited, Telecommunications
Consultant India Limited and Nepal Ventures Private Limited. The
Company has 26.66 percent equity ownership in UTL. UTL operates basic
telephony services in Nepal based on Wireless-in-local loop technology.
29. Disclosure as required under clause 32 of Listing Agreement
Amounts of loans and advances in the nature of loans outstanding from
subsidiaries during the year ended 31 March 2011
31. Previous year figures have been regrouped / reclassified wherever
necessary to conform to the current year''s classifications. The results
for the current year ended 31 March 2011 include the operations of Tata
Communications Internet Service Limited. In view of this, the results
for the current year are not comparable with the corresponding period
of the previous financial year. |