Satyam's $125m class action suit settlement taxable: AAR

The Authority for Advance Ruling has ruled that the USD 125 million-class action suit settlement done by Mahindra Satyam (formerly Satyam Computer Services Limited) is taxable.

According to AAR ruling, the Indian IT firm has to deduct a tax of 30% on USD 125 million and the rest of the amount will go to the class action settlement.

The US investors who held American Depository Receipts or ADR of Satyam Computer Services filed a class action suit against the company after Ramalinga Raju, former chairman of the company, admitted to a fraud in January 2009.

"... the settlement amount will be regarded as sum chargeable under the provisions of the Act as required under section 195 of the Act...the time to deduct the tax is when the amount is moved from the segregated account in India to the initial escrow account in the US...," the AAR ruling dated August 27 said.

"... the rate at which the tax is to be deducted is at 30%," the ruling said.

When contacted Mahindra Satyam officials refused to comment.

Tech Mahindra, which took over Satyam in 2009, had to settle all pending litigations with several investors who had claimed losses due to the shares of the firm plunging on bourses including New York Stock Exchange whare Satyam ADRs were listed.

In February 2011, Mahindra Satyam had said it reached a settlement with the lead plaintiffs in the class action filed against the Satyam in the United States District Court, Southern District Court of New York.

Mahindra Satyam had said it has agreed to pay USD 125 million subject to the approval of the Reserve Bank of India and other statutory bodies.

The settlement amount includes taxes, compliance costs, attorney's fees and expenses, it had added.