dna exclusive: Tax evasion - IBM India told to cough up Rs5,357cr

In what may well be one of the biggest cases of corporate tax evasion, the income-tax department has served a demand notice to IT multinational IBM India, asking it to pay income tax to the tune of Rs5,357 crore. The October 28 notice followed a detailed investigation during which the department found that IBM India had suppressed revenue to evade tax under the export promotion scheme of the Software Technology Park of India (STPI).



In response to dna's e-mail questionnaire, IBM refused to comment, and said: "Please excuse us from this story."STPI had been set up under the ministry of communication and information technology to boost the country's software exports and foreign exchange reserves. Under this scheme, IT companies' units or offices are eligible for 100% tax exemption on income generated from software exports as defined in section 10A and 10B of I-T Act 1961 or under 10AA if they are located in a special economic zone (SEZ). IBM India has several units in STPIs and SEZs across India and is liable to claim tax exemption on income from software exports.



The tussle began in 2011 when authorities raised a tax demand of Rs1,090 crore for the financial year 2008-09 as IBM India had failed to maintain separate account books for income earned from exports at its units in SEZ and STPI zones.



The multinational corporation approached the Income Tax Appellate Tribunal, which stayed the demand. The department challenged the stay in the Karnataka high court in January 2013 and the court allowed it to collect Rs1,090 crore. Several writ petitions have since been filled to stall the I-T investigation, sources said.



Following the Karnataka high court order, the department carried out a deeper probe and noticed that IBM India had made "incorrect claims". In its tax return for the financial year 2008-09, IBM India claimed a loss of Rs400 crore. But the income tax department found that the company suppressed an income of Rs7,288 crore in 2008-09. IBM India's total income for 2008-09, according to the tax department, was Rs 10,866 crore (counting the suppressed component). The company claimed tax benefits u/s 10A and 10AA for 2008-09, but has consistently failed to produce records to show income from software exports to justify the exemption claim, according to the demand notice.



Careful scrutiny of the tax notice shows that STPI and Reserve Bank of India officials may have helped IBM India to avail of tax exemption in violation of the rules. While this pertains to exemptions for one financial year, the department is also investigating IBM India's tax exemption claims since 2000-01.



Several leading IT companies have benefited from STPI schemes as they received tax holidays for 10 years. The scheme was due to expire in 2009, but the government extended it until 2011 after several IT firms came together to demand its extension.
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