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Taxman probes Satyam exemptions
January, 15th 2009

Though happy with the fact that troubled IT major Satyam Computer Services had paid income tax on unreal profits -- as claimed by its chairman B Ramalinga Raju -- the income-tax department is planning to re-examine the exemptions the company had claimed under the income tax regulations.

According to a preliminary report sent by the I-T officials to the Central Board of Direct Taxes, Satyam has been paying income tax regularly on the profits it has been announcing. However, the company has not paid any advance tax in the last three quarters this year.

"As far as we are concerned, the company has paid tax on the profits. Whether they are real profits or unreal is not for us to decide. If they had paid less tax than what they are supposed to, the department will inspect the records," an official source in the department said.

The officials are not looking at the advance tax non-payment now since the company can as well pay the tax at the end of the assessment year.

According to the departmental report, a gist of which is available with DNA, "There would be some marginal implication of economic fraud on various direct taxes including income tax as the company had already paid tax on inflated income even when it was running in losses. However, there is desirability to re-examine the claims made by the company to claim various exemptions under the Act."

The department also feels that there would not be any implication of such a fiasco on the fringe benefit tax "as FBT is unrelated with the quantum of income. Even if there is heavy loss, the FBT would squarely depend upon the expenditure on certain activities inviting FBT under Chapter XII-H of the I-T Act."

The department is also examining the issue of capital gains or capital loss impact on investors due to the drop in the share value in the market. Prima facie, it feels that there would be a possibility of claim of capital loss by certain other institutions or individual cases and the loss they sustained on account of reduced value of shares.

Though saying that there is a likelihood of an impact on dividend tax, the department claims that it is closely watching the developments and the impact under direct taxes on account of the happenings at Satyam pending a detailed report.

Meanwhile, the department is also examining some of the old cases in which Satyam was found to be having a role. "In 2000-01, the department had found fixed deposits with a close relative of Satyam's Raju. That time though it was found that the FDs might find their route to Satyam, some officials did not probe it further. Now, the decisions of those officials too are being reviewed," the source said.

 
 
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