2013 (12) TMI 613 - HC - Income Tax

Stay for recovery of demand and removal of provisional attachment u/s 281B - Held that - The tax demand or issues are inchoate and it may take a considerable time before the issue is finally settled - The dispute may be taken to the Supreme Court for final adjudication and this is a time consuming process - The final outcome is uncertain and not free from doubt. Even if the matter is decided against Nokia India/Nokia Finland, the quantum of demand itself in respect of deduction under Section 40(a)(i), interest and penalty including penalty under Section 271C/271(1)(c) of the Act would depend upon several factors which may take their own time to decide. In view of the closing down or keeping out Nokia India, when Nokia Finland is globally transferring and disposing of their hand devices/mobile phones business, the attachment of assets may not be the sound and considered decision or even in the interest of the Revenue as there could be sharp decline in the market value of the assets of Nokia India. The interim order dated 26th September, 2013, in particular clause (1) and (3) is passed to allow sale of assets by Nokia India to Microsoft/Microsoft International subject to fulfilment of certain conditions - Nokia Finland, will receive about Rs.31,000 crores pursuant to the global transfer of hand devices/mobile phones from the Microsoft International - It will continue to exist and operate, even after handset/mobile phone business is sold to Microsoft International as it being a listed company having several businesses and business interests. Nokia Finland, in addition to the undertaking or letter of guarantee already quoted, will file another letter in form of guarantee/undertaking incorporating the terms and conditions and file the said letter/undertaking with the income tax authorities - It will pay the tax dues dues of the company sold out to the extent permissible and recoverable under the provisions of the Act - Partly allowed in favour of assessee.

Issues Involved:
1. Modification of interim orders dated 26.9.13.
2. Provisional attachment under Section 281B of the Income Tax Act.
3. Tax liabilities and proceedings against Nokia India and Nokia Finland.
4. Impact of the global sale of Nokia's devices and services business to Microsoft.
5. Valuation and sale of assets of Nokia India.
6. Protection of the Revenue's interests.

Issue-wise Detailed Analysis:

1. Modification of Interim Orders Dated 26.9.13:
The application filed by Nokia India Pvt. Ltd. sought modification of the interim order dated 26th September, 2013. The interim order had imposed several restrictions on Nokia India, including the attachment of bank accounts and assets, which Nokia India argued had paralyzed their business operations. The court had initially directed Nokia India to refrain from transferring ownership or leasehold rights of immovable assets, operate bank accounts in the normal course of business, and inform the assessing officer before repatriating money abroad.

2. Provisional Attachment Under Section 281B of the Income Tax Act:
The writ petition challenged the order dated 25th September, 2013, passed by the Additional Commissioner of Income Tax under Section 281B of the Income Tax Act, 1961. This order provisionally attached various assets, properties, and bank accounts of Nokia India to protect the interests of the Revenue. The attachment was due to concerns that Nokia India did not have sufficient assets to meet anticipated tax liabilities.

3. Tax Liabilities and Proceedings Against Nokia India and Nokia Finland:
The respondents claimed significant defaults were noticed during a survey conducted on 8th January, 2013. Proceedings under Section 201/201(1A) read with Section 195 of the Act were initiated against Nokia India, resulting in a total demand of Rs.1912 crores. The impugned order estimated potential demands for various assessment years, primarily due to non-deduction of TDS on royalty payments for software licensing. The respondents were concerned about Nokia India's ability to meet these demands, especially after repatriating Rs.3500 crores as dividends to Nokia Finland.

4. Impact of the Global Sale of Nokia's Devices and Services Business to Microsoft:
Nokia Finland had entered into an agreement with Microsoft International Holdings B.V. for the sale of its devices and services business globally. The agreement allowed Microsoft International to purchase assets or equity shares of Nokia India. However, Microsoft International decided not to purchase equity shares and instead opted for asset purchase, contingent on necessary approvals. If the assets were not transferred, Nokia India's manufacturing operations would wind down within 12 months, impacting 8000 employees and 25000 people in ancillary units.

5. Valuation and Sale of Assets of Nokia India:
The court considered the valuation of Nokia India's assets and the potential impact on the Revenue's interests if the assets were sold. The respondents had not conducted a detailed valuation or examined the consequences of Nokia India ceasing operations. Nokia India offered to deposit surplus proceeds from the asset sale, with a minimum of Rs.2250 crores in an escrow account to meet tax liabilities. The court noted that the respondents' projected tax demands were debatable and required in-depth adjudication.

6. Protection of the Revenue's Interests:
The court emphasized the need to protect the Revenue's interests while allowing Nokia India to continue its operations. Nokia Finland agreed to provide a letter of guarantee to cover tax liabilities determined under Section 201/201(1A) and relevant provisions. The court modified the interim order to permit the sale of assets to Microsoft International, subject to conditions ensuring the Revenue's interests were safeguarded. These conditions included depositing Rs.2250 crores in an escrow account, Nokia Finland's joint liability for tax demands, and the continuation of installment payments as per previous orders.

Conclusion:
The court allowed the modification of the interim order, enabling Nokia India to sell its assets to Microsoft International, subject to conditions ensuring the Revenue's interests were protected. Nokia Finland provided a letter of guarantee, and an escrow account was established to cover potential tax liabilities. The court emphasized the need for fair and just treatment of both parties while safeguarding the Revenue's interests. The application was disposed of with no order as to costs, and the matter was listed for further hearing.

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