Wednesday, 15 January 2014

Rs 2400 crore tax woes mount for AV Birla Group

In what could be a fresh warning to India Inc about corporate de-mergers facing increased scrutiny from revenue authorities, the income tax appellate authority has ruled against a plea filed by AV Birla Group entity Aditya Birla Telecom Limited (ABTL) which had challenged a Rs 2400 cr tax demand issued earlier by the department, three sources familiar with the development told ET NOW.

"The CIT ( Appeals) or Commissioner of Income Tax (Appeals) verdict is in favour of the I-T authorities who had sought to tax an internal re-organisation or restructuring exercise carried out within the AV Birla Group in 2009. The demerger was approved by the high courts under the Companies Act, but it allegedly did not satisfy the conditions laid down under the Income Tax act and was hence taxed as a slump sale," said an individual on the condition of anonymity.
In response to a query from ET NOW, Akshaya Moondra, CFO, Idea Cellular said , "ABTL is in the process of filing an appeal against a CIT (A) ruling on the Rs 2,432 crores unjustified tax demand, pertaining to the demerger of the telecom undertaking from ABTL to Idea Cellular Limited." ABTL can now approach the ITAT or the income tax appellate tribunal.
Sanjay Sanghvi, Tax Partner, Khaitan & Co says , " Each case might have specific facts, but such orders may create uncertainty in group restructuring."
In 2009, ABTL transferred its telecom licence for the Bihar circle, along with other assets and liabilities, to its parent, Idea Cellular. Both the Gujarat and Bombay High Courts approved the arrangement, which valued the transaction at Rs 2,069 crore. The I-T department treated the transfer of licence, assets and liabilities from Aditya Birla Telecom Ltd to Idea Cellular as a slump sale subject to capital gains tax and issued a tax demand against ABTL in April 2013. Simultaenously, Idea Cellular was also issued a tax demand order of Rs1,500 crore on business income arising out of the transfer of telecom licences and other assets from Aditya Birla Telecom as part of the demerger.
Idea believes the tax demands are inconsistent with established tax laws and precedents and in an earlier statement told ET NOW that "The transaction involves a scheme of restructuring between a wholly owned subsidiary and a parent company with the sole objective of administrative consolidation of a telecom licence of one service area in the parent company, without any financial transaction or transfer of funds."


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