The Government, on Friday told the Supreme Court that it will set aside its order of a tax demand of Rs 617 crore on Satyam Computer Services.

The Attorney-General, Mr G. E. Vahanvati, representing the Central Board of Direct Taxes (CBDT), informed the court that the March 10, 2011, tax demand order would be set aside and a fresh decision made on the income-tax liability of Satyam (now Mahindra Satyam) after giving the company a hearing. The court observed that Satyam's main grievance that it was not heard by the CBDT (before the tax demand was made) was “over”.

However, the court did not pass an order immediately as sought by Satyam to defreeze its bank accounts containing Rs 1,300 crore. The issue will be heard on Monday and till then the status quo will remain. This means neither the company nor the tax authorities will be able to operate the amount in the bank accounts or carry out any transactions therein till Monday, legal sources said.

The CBDT had raised the tax demand on the basis of Rs 345-crore worth of foreign tax credit availed itself of by the former management during 2003-09. But Satyam's current management claims this amount is fictitious and was the result of the inflation of revenues by its founder Mr Ramalinga Raju. Satyam claims that it may not e have any tax liability if the fictitious amount is removed.

Seeking the court's direction to stay the attachment of its bank accounts (in effect defreeze Rs 1,300 crore), Satyam claimed that it urgently needs the money to transfer a huge amount ($10 million) to the US Securities Exchange Commission as part of a settlement that it reached with the American regulator. The company said it also needs the money to pay salaries to its overseas employees.

Objection to defreezing

Mr Vahanvati objected to defreezing, saying Satyam has Rs 1,800-crore worth of cash reserves. He asked the court to let the money remain with the Government, adding that the company would be refunded the amount if it was found that it was entitled to the money after the revised assessment. On Satyam's request that part of the amount be deposited in an escrow account, the court said the company's interests will be protected.

Satyam had challenged before the apex court the recent interim order of the Andhra Pradesh High Court, directing it to issue a banker's cheque for Rs 350 crore and an unconditional bank guarantee for Rs 267 crore (towards interest on the Rs 350 crore) to the Additional Commissioner (Income-Tax), within a week from March 30.

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