Nokia tax case: HC asks I-T to release Chennai plant

The Delhi High Court has directed the income-tax department to release Nokia India’s manufacturing plant in Chennai that it had frozen as part of a tax dispute case.

The case had become a major hurdle for a USD 7.2-billion global deal between Microsoft and Nokia, and the judgment would allow for the sale of the asset and help the deal move towards consummation.

Also read: Finland, Indian taxmen meet on Nokia case; talks continue

The HC attached several conditions for the asset sale, including directing Nokia India to pay Rs 2,250 crore as an interim payment to the I-T department, and asking the firm to submit a letter guaranteeing compliance with the order.

The case was starting to be viewed as becoming a barrier to a high-profile global deal. While it clears roadblocks by facilitating sale of one of Nokia's biggest manufacturing plants in the world that employed about 7,000 people, one will have to wait for the judicial verdict to see the exact amount of tax that Nokia will finally need to pay, said Dinesh Kanabar of KPMG India.

The income-tax department had earlier informed the court that Nokia owed it Rs 21,153 crore towards liabilities arising from a seven-year period, because of failing to deduct TDS from royalty payments made to the parent company.

Kanabar said there was a sharp division of views among tax experts about how the characterization of such payments should be done. “Whether the stand of the tax office is right or not is up for judicial scrutiny. There are decisions for and against and until we hear from the court, we will not know, which way this will go."

As part of the judgment, the HC has said Finnish Nokia Corp will be jointly liable along with the Indian arm to pay taxes and that the interim deposits would rise if value of the Chennai asset increases.

The court also said that Microsoft will not be liable to pay Nokia’s India tax dues and that it can buy Nokia’s assets as long as relevant conditions are met.