The Telegraph
Since 1st March, 1999
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VSNL wary of tax burden

Mumbai, Oct. 14: Revenue sharing agreements with PSU telecom majors BSNL and MTNL and the controversial investment proposed for Tata Teleservices are not the only hurdles before Videsh Sanchar Nigam Ltd (VSNL). There are many more.

The internet service provider and overseas telephony major, which was acquired by the Tatas through the disinvestment route, is also in the midst of a dispute with the Income Tax authorities over potential liabilities of over Rs 2,100 crore. Most of the tax claims pertain to periods before the Tatas acquired a controlling stake in the company.

In a submission before the Securities Exchange Commission (SEC), the Tata-controlled VSNL, which is listed on the New York Stock Exchange, has provided a series of risk factors.

“The Indian tax authorities claim that we owe certain tax payments. We have not made any provision in our financial statements for such claims and in the event that the tax authorities prevail on their claims there could be a significant negative impact on our financials and operations,” VSNL warned its overseas stakeholders.

The company, which is disputing the claims, has however stated that it has a strong case based on advice from independent Indian counsel.

One such dispute pertains to the stand taken by the tax authorities that the company is not entitled to a tax deduction it took in the year ended March 31 1995, for licence fees paid by it to the department of telecommunications (DoT).

VSNL here explained that it appealed to the Income Tax Appellate Tribunal, Mumbai, as the Commissioner of Income Tax (Appeals)-I Mumbai, denied the company’s claim with respect to that year. Appeals with respect to the other years are still pending with the Commissioner of Income Tax (Appeals)-I Mumbai.

“On September 14 2000, the tribunal issued an order in the company’s favour and held that the licence fee paid by it to DoT is an allowable tax deductible expenditure under the Income Tax Act. Consequent to this order, the refund due to the company is adjusted against the demand for the subsequent years,” the company noted.

“The company has received a communication from the high court that the department has disputed its claim. If the company loses that case, the tax authorities may make similar claims for subsequent years, resulting in an aggregate potential liability of Rs 2,162 crore including interest, but excluding penalties as of March 31 2002, and additional amounts for the periods thereafter,” it added.

VSNL says it has reasonable basis to believe that its appeal may succeed and therefore it has not made any provision for potential liability arising from these claims and there could be a deep negative impact on the company’s financial condition.

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