Nokia Tax Dispute: Luthra gets Nokia India assets defrozen, green signal for Nokia-Microsoft deal

The Delhi High Court on Friday vacated the provisional attachment order of Nokia India’s assets (including its Chennai factory and bank accounts) by the Income Tax authorities..A Division Bench comprising Justices Sanjiv Khanna and Sanjeev Sachdeva, while hearing Nokia’s petition against the attachment order [Nokia India Private Limited v. Additional Commissioner of Income Tax & Anr., WP (c) 6150/ 2013], also gave a green signal for the sale of assets by Nokia India to Microsoft International..Luthra & Luthra Tax Partner Vikas Srivastava argued the matter on behalf of Nokia India. The Luthra team included JP Singh, Parag Mohanty, Leeneshwari Makhijani and Varsha Bhattacharya. The Income Tax Authority was represented by Solicitor General Mohan Parasaran. Luthra team initially briefed Senior Counsels Abhishek Manu Singhvi and Harish Salve, who appeared for Nokia India only at the initial stage. .In January 2013, the Indian tax authorities claimed that Nokia India had defaulted over payment of tax in connection with the payments made to Nokia Finland for purchase of software. The IT Department had sought unpaid taxes amounting to Rs. 3,997 crores and had also provisionally attached Nokia India’s assets (including its Chennai factory) and bank accounts..This attachment order had a direct bearing on Nokia’s agreement with software giant, Microsoft. In September 2013, Microsoft International had agreed to purchase Nokia India’s assets pursuant to an agreement for sale of Nokia Finland’s devices and services business. The attachment of Nokia India’s assets raised serious doubts over whether the agreement with Microsoft would come through..The Court after hearing the parties vacated the attachment order and also gave a go ahead for the deal with Microsoft. However, this would be subject to Nokia Finland bearing joint liability along with Nokia India to pay the tax demand. Further, Nokia India or Nokia Finland would be required to deposit a minimum of Rs. 2,250 crore in an escrow account as security..The larger issue of whether the purchase payment for software made by Nokia India to Nokia Finland would be taxable in India remains open for debate.