iGate facing unsettled tax demands worth Rs 738 cr

After WNS and Infosys, iGate is the latest to face tax issues in India with the US-based outsourcing firm having an "unsettled" tax demand of USD 132.7 million (about Rs 738 crore) for assessment years 2004-05 to 2009-10.

iGate, which was in news for sacking of its chief executive Phaneesh Murty over non-disclosure of his alleged affair with a subordinate, said these demands are not tenable and the NASDAQ-listed firm has approached the requisite appellate  authorities.

"As of March 31, 2013, the company has open tax demands of USD 132.7 million for relevant assessment years 2004-05, 2005-06, 2006-07, 2007-08, 2008-09 and 2009-10," the firm said in a filing to US Securities and Exchange Commission (SEC).

On the tax demands, the filing says: "The assessment order demand is raised mainly on account of disallowance of certain benefits under section 10A of the Indian Income
Tax Act and transfer pricing adjustment on account of interest on delayed recoveries from associated enterprises."

Although, iGate has paid an amount of USD 14.16 million in relation to these demands, which are pending at various levels of appeals, management considers these disallowances as not tenable against the company and therefore no provision for tax contingencies has been established related to unpaid amounts, the filing added.

When contacted, a iGate spokesperson said: "Majority of the unsettled tax demand for the mentioned period is mainly on account of disallowance of Section 10A benefits of the Indian Income Tax Act. Management considers these demands as not tenable and the matter is pending at various levels of appeal."

Under the Indian Income Tax Act, 1961, iGate Global and iGate Computer are eligible to claim an income tax holiday on profits derived from the export of software services from divisions registered under Special Economic Zones (SEZ) arrangements, the filing said.

Profits derived from export of software services from these divisions registered under the SEZ scheme are eligible for 100 per cent tax holiday during the initial five consecutive assessment years, followed by 50 per cent for the subsequent ten consecutive assessment years from the date of commencement of operations by the respective SEZ, it added.