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Don't expect tinkering with indirect taxes in Budget: PwC
February, 24th 2010

Barely two months after Mahindra Satyam agreed to pay $70 million to the UK-based mobile payment services firm Upaid in an out-of-court settlement, a fresh row has erupted between the two firms over a tax dispute. Seeking legal help this time, Mahindra Satyam, in a preemptive move, has moved a US court over the tax liabilities of the settlement amount.

The company on Tuesday said it has filed a lawsuit against Upaid in a New York court for a declaration that the settlement agreement is valid and enforceable.

Moreover, it has also sought a firm say on the tax liabilities rising from the settlement payment, including responsibility for complying with tax deduction requirements, from Upaid. Furthermore, it has also sought compensatory damages against Upaid in an amount to be determined during trial, it said.

According to sources placed in the company, the additional tax liabilities, if any, would run up to 0-40%, amounting to around $20 million whereas Satyam, in its announcement to the bourses, has said it has discharged its obligations under the settlement agreement and shall owe nothing further to Upaid.

Also, the company wants Upaid to declare that the disbursement of funds from the escrow account must be made in accordance with Indian law, including any requirement to deduct taxes from the settlement amounts prior to disbursement.

In the out-of-court settlement in December last year, Upaid had agreed to drop all charges against Mahindra Satyam and also provide a royalty-free licence on its patents on a worldwide and perpetual basis. The amount is, however, a tenth of what Upaid had earlier sought for damages from the erstwhile Satyam.

Mahindra Satyam also said it has already deposited the entire $70-million settlement amount into the escrow account provided for under the agreement.

Prior to the settlement, Upaid had filed the lawsuit in a Texas court seeking damages exceeding $1-billion, alleging forgery of documents necessary for transfer of proper title to its under an assignment agreement entered into in 1998, whereas, after the settlement, the Hyderabad-based company is entitled to receive from Upaid including the release of claims, licence of intellectual property and dismissal of pending litigation.

Even if we assume that Satyam has to shell out the additional tax liability, the company has much larger issues to handle and will not affect the operations and stock price, said Apurva Shah, head of research, Prabhudas Lilladher. On Tuesday, the companys scrip closed at Rs 96.85, up by 0.10% on the Bombay Stock Exchange.

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