A.V. Birla group firms face Rs 3,900-cr tax bill

Idea Cellular Ltd and its subsidiary have been slapped with a tax demand, supposedly over a restructuring exercise approved by the High Courts more than three years ago.

The aggregate tax bill faced on this count is about Rs 3,900 crore, it is learnt.

The tax demand was raised on the two AV Birla group companies — Idea Cellular and Aditya Birla Telecom Ltd (ABTL) — on the last day of the previous financial year (March 31, 2013). ABTL is a 100 per cent subsidiary of Idea Cellular Ltd.

Without disclosing how much tax it has to pay, Idea Cellular said the demands are “unjustified” and based on an “erroneous interpretation of the current tax laws and the facts of the case”. “The demands are inconsistent with established tax laws and past precedents. They are misplaced and no tax is applicable,” an Idea cellular spokesperson said.

Idea also said it was evaluating all options, including challenging the demand at the appropriate forums.

The matter purportedly related to a scheme of restructuring (approved by High Courts in December 2009 and January 2010) that led to transfer of licences, assets and liabilities from ABTL to Idea Cellular. The tax department sees this restructuring as a slump sale and is, therefore, looking to bring it to tax. But the companies concerned do not see it as slump sale.

De-mergers are tax neutral so long as certain conditions under the income tax law are fulfilled. But slump sales are not tax neutral, say experts.

From April 2000, India had introduced a special provision — Section 50B — in income-tax law to tax slump sales as “capital gains”.

Thanks to increased economic integration with the world, there has been a spurt in mergers, de-mergers and other forms of restructuring.

srivats.kr@thehindu.co.in

(This article was published on April 5, 2013)
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