Rs 5000 crore tax evasion from IBM?

The income tax department has slapped Rs 5,357 crore tax evasion demand notice to IBM India from the revenues earned in FY 2009, according to the news reports.

As reported, IBM India spokeswoman has confirmed that the company did receive a tax notice, but "declined to comment on the amount of tax liability or the nature of the notice"

An IBM spokesperson was reportedly quoted in Business Standard (BS) saying, "Fundamental to IBM's culture and business model is that we act with integrity wherever we do business. We have demonstrated our commitment to integrity since we began operations in India. IBM has taken this tax dispute for judicial recourse."

However, BS reported an income tax department official saying that the preliminary assessment order was slapped for under-reporting its income.

The evasion issue surfaces from the Indian government's export promotion scheme of the Software Technology Park in India. The issue dates back in 2011, when tax authorities demanded Rs 1090 crore for FY 2008-09 as IBM India "failed to maintain separate account books for income earned from exports at its units in STPI zones."

STPI was established in 1991 under the Ministry of Communications and Information Technology for the development and export of computer software, including export of professional services. The benefits include 100% foreign equity, tax incentives, duty free import among other.

After the income tax department's fine of Rs 1090 crore, IBM India was successful in staying the demand after it approached the Income Tax Appellate Tribunal. However, the department then challenged the order in the Karnataka high court, where the court allowed the department to collect 1090 crore.

Following this order, the I-T department also found that IBM India had misled in its financial statement. According to DNA, IBM India in its tax return for the financial year 2008-09 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.

However, the demand notice from I-T department as reported stated that IBM India consistently failed to produce records to show income from software exports to justify the exemption claim.

It is expected that IBM will again seek legal recourse.