NEW DELHI | MUMBAI: IBM
India has been asked to prove that revenue to the tune of Rs 6,000
crore during 2007-08 was from export of software under a special
incentive scheme if it wants the taxman off its back.
The order by the Income Tax Appellate Tribunal, the first of its kind, has implications for the entire industry which has claimed tax rebates under the Software Technology Parks of India (STPI) scheme. Although tax rebates under the STPI scheme came to an end in March 2011, several software companies are in disputes with authorities over rebates for previous years.
The order by the Income Tax Appellate Tribunal, the first of its kind, has implications for the entire industry which has claimed tax rebates under the Software Technology Parks of India (STPI) scheme. Although tax rebates under the STPI scheme came to an end in March 2011, several software companies are in disputes with authorities over rebates for previous years.
IBM India, which is estimated to employ more than one lakh
professionals in the country, has been locked in a battle with tax
authorities for the past three years. This latest order came as the
company is appealing a Rs 1,090-crore tax demand for the assessment year
2008-09.
The order, a copy of which was acquired by ET, asked the dispute resolution panel to re-examine the case against IBM, but it also said that the income-tax department was "at liberty to examine as to whether the convertible foreign exchange brought into India represents consideration received for export of computer software". IBM India should file all documents that will be necessary to establish its claim for deductions, it said. Even though the preliminary investigation centered on the fact that IBM did not keep separate books for its units, a tax official said that the company was yet to produce mandatory documents to support export proceeds.
"You see, like in every order what will determine the sustainability of the order is the facts in the case and the way the facts are presented. I am sure a company of IBM's stature is preparing a strong, well-reasoned defence," Shailesh Haribhakti, chairman of audit advisory firm Haribhakti & Co. Haribhakti is not involved in the case.
"The
Draft Assessment issued by the India Tax Authorities in October 2013
ignores fundamental accounting and tax principles and IBM is seeking
relief from the High Court," an IBM spokesperson said in an email.
Several information technology companies, among them Wipro, Infosys, iGate and WNS, are fighting the income tax department which is arguing that they are not eligible for rebates worth thousands of crore under the STPI scheme or in Special Economic Zones.
Under STPI guidelines, every company must sign software development agreements with clients to export software. The agreements form the basis for STPI authorities to certify export invoices and so-called Software Export (Softex) forms. In the case of IBM, the Softex forms were cleared without software development agreements, the income tax department is claiming.
Moreover, despite specific complaints, STPI ignored the issue, according to an income tax official. The STPI did not respond to an emailed questionnaire and calls seeking comment.
"We will use this order to try and get similar orders against other IT companies which are violating rules," the official said.
V Balakrishnan, a former CFO of Infosys, while declining to comment on IBM specifically, observed that every time work is done from an STPI unit, a Softex form is filled, an invoice raised with the client and Softex form filed with the remitting bank. "It is just not possible to do STPI transactions without paperwork," he said.
The tax holiday under the STPI scheme began in 2000-01. IBM India has eight units in STPIs and two in SEZs.
Source: Economic Times
The order, a copy of which was acquired by ET, asked the dispute resolution panel to re-examine the case against IBM, but it also said that the income-tax department was "at liberty to examine as to whether the convertible foreign exchange brought into India represents consideration received for export of computer software". IBM India should file all documents that will be necessary to establish its claim for deductions, it said. Even though the preliminary investigation centered on the fact that IBM did not keep separate books for its units, a tax official said that the company was yet to produce mandatory documents to support export proceeds.
"You see, like in every order what will determine the sustainability of the order is the facts in the case and the way the facts are presented. I am sure a company of IBM's stature is preparing a strong, well-reasoned defence," Shailesh Haribhakti, chairman of audit advisory firm Haribhakti & Co. Haribhakti is not involved in the case.
"The
Draft Assessment issued by the India Tax Authorities in October 2013
ignores fundamental accounting and tax principles and IBM is seeking
relief from the High Court," an IBM spokesperson said in an email.Several information technology companies, among them Wipro, Infosys, iGate and WNS, are fighting the income tax department which is arguing that they are not eligible for rebates worth thousands of crore under the STPI scheme or in Special Economic Zones.
Under STPI guidelines, every company must sign software development agreements with clients to export software. The agreements form the basis for STPI authorities to certify export invoices and so-called Software Export (Softex) forms. In the case of IBM, the Softex forms were cleared without software development agreements, the income tax department is claiming.
Moreover, despite specific complaints, STPI ignored the issue, according to an income tax official. The STPI did not respond to an emailed questionnaire and calls seeking comment.
"We will use this order to try and get similar orders against other IT companies which are violating rules," the official said.
V Balakrishnan, a former CFO of Infosys, while declining to comment on IBM specifically, observed that every time work is done from an STPI unit, a Softex form is filled, an invoice raised with the client and Softex form filed with the remitting bank. "It is just not possible to do STPI transactions without paperwork," he said.
The tax holiday under the STPI scheme began in 2000-01. IBM India has eight units in STPIs and two in SEZs.
Source: Economic Times
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