The income-tax department may have opened a Pandora's Box of sorts with its directive to Hong Kong-based Reach Networks Hong Kong Ltd to pay up Rs 209 crore as tax.
HK-based submarine cable operator makes part-payment; will move SC
MUMBAI: The income-tax department may have opened a Pandora's Box of sorts with its directive to Hong Kong-based Reach Networks Hong Kong Ltd to pay up Rs 209 crore as tax on its income from leasing submarine cable systems to Indian telecom service providers.
The tax claim is for six years between 1999 and 2005 during which Reach earned revenues from VSNL, Airtel and Reliance Infocomm (now Reliance Communications).
The I-T assessment officer in the case has held that, since Reach's cable systems were used for transporting calls originating in India and also terminating calls originating outside of India at certain stations in India, it has ‘a business connection, and its income is chargeable to tax under Section 9(1)(vi)(b) and (vii)(b) of I-T Act’, according to tax advisory site taxindiaonline.com.
The website said Reach has already paid the department Rs 11 crore as part-payment of the claim and a further Rs 1 crore to obtain a stay on the order.
Sources said the Hong Kong firm plans to move the Supreme Court on this issue.
Tax experts believe the development could have serious implications for Indian telecom service providers RCom, Bharti Airtel and Tata Communications, which own cable systems running through the territorial waters of other countries and provide cable systems on lease to telecom players in other geographies.
“It is likely that most countries are going to adhere to the Melbourne Agreement in which leasing out systems to earn revenue is considered taxable,” said an expert on condition of anonymity.
Spokespersons from Tata Communications or Bharti Airtel declined to comment on possible implications of this development.
In May, Bharti Airtel signed an agreement in the UK to build the 9,000-mile Europe India Gateway cable system connecting 13 countries across three continents, along with 15 other global telecommunications players.
RCom subsidiary Reliance Globalcom (earlier FLAG) runs 65,000 km of submarine cable system with plans to connect 60 countries by 2009.
Reach provides international voice and satellite services in Asia and has interests in more than 40 submarine cables.
t_amit@dnaindia.net
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}
)
){kind=small}
){kind=small}
)
)
)
)
)
){kind=small}
){kind=small}
){kind=small}
){kind=small}
){kind=small}