Nokia India, over the last 5-6 years, had made royalty payments of Rs 25,000 cr to the parent company for which it did not make the required 10% tax deduction source.
The issue is that any royalty payment made against supply of software by the parent company attracts a 10 per cent tax deduction. This, the I-T Department said, Nokia India did not do since its plant went on stream in 2006.
Nokia India has been downloading software from its parent company to make mobile phones in India, said a Department official on condition on anonymity.
The officials concluded their investigation after a round-the-clock ‘survey’ at the plant. The survey commenced on Tuesday morning. “What we expected turned out to be right,” he said.
Nokia India officials have been asked to report to the Department’s office in the city on January 16 to give their views. Since most of the officials concerned with the operations were located in Gurgaon and with the Pongal holidays approaching, the Department has given the company time till next week. Nokia India did not comment on the development.
As per a Clarification Amendment of the Finance Act, 2012, any payment made by a company to a non-resident company has to be subject to a 10 per cent tax. For the last 5-6 years, Nokia had made payments to the extent of Rs 25,000 crore on which there is to be a tax deduction at source of 10 per cent (Rs 2,500 crore), which the company has not paid to the Department, the official claimed.
“Before the clarification was issued, the law was vague. However, today the law is clear with reference to payment against the supply of software,” the official said. While there is no issue with regard to supply of hardware, the issue is only with regard to software, which is reusable, he said.
The Sriperumbudur plant, located nearly 40 km west off Chennai, manufactures over 20 different models.