iGate faces unsettled tax demand of $132.7 million

Infotech Lead India: The US-based outsourcing major iGate is facing an unsettled tax demand of $132.7 million (about Rs 738 crore) for assessment years 2004-05 to 2009-10.

Another BPO major WNS is also facing additional tax demand of about Rs 557 crore by Indian tax authorities. The tax demand is due to transfer pricing issue with regard to acquisition of U.K.-based Aviva’s BPO services. The outsourcing major, however, has challenged the I-T notices in courts of law.

IT major Infosys is also facing fresh tax demands. The Income Tax department has slapped a fresh $106 million tax demand notice on Infosys for 2009 fiscal. Infosys is already contesting additional income tax demands of $214 million for four fiscal years beginning 2005. The software exporter will take legal recourse against the fresh tax demand notice as well.

iGate says these demands are not tenable and the NASDAQ-listed firm has approached the requisite appellate authorities.

“As of March 31, 2013, the company has open tax demands of 132.7 million dollars for relevant assessment years 2004-05, 2005-06, 2006-07, 2007-08, 2008-09 and 2009-10,” the firm said in a filing to US Securities and Exchange Commission (SEC).

On the tax demands, the filing says: “The assessment order demand is raised mainly on account of disallowance of certain benefits under section 10A of the Indian Income Tax Act and transfer pricing adjustment on account of interest on delayed recoveries from associated enterprises.”

Though iGate paid $14.16 million in relation to these demands, which are pending at various levels of appeals, management considers these disallowances as not tenable against the company and therefore no provision for tax contingencies has been established related to unpaid amounts, the filing added.

When contacted, an iGate spokesperson said: “Majority of the unsettled tax demand for the mentioned period is mainly on account of disallowance of Section 10A benefits of the Indian Income Tax Act. Management considers these demands as not tenable and the matter is pending at various levels of appeal.”

Under the Indian Income Tax Act, 1961, iGate Global and iGate Computer are eligible to claim an income tax holiday on profits derived from the export of software services from divisions registered under Special Economic Zones (SEZ) arrangements, the filing said.

Profits derived from export of software services from these divisions registered under the SEZ scheme are eligible for 100 percent tax holiday during the initial five consecutive assessment years, followed by 50 percent for the subsequent ten consecutive assessment years from the date of commencement of operations by the respective SEZ.

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