MTNL threatens to claim damages from I-T Dept

NEW DELHI, APRIL 14: Matching the rising mercury levels in the Capital, the fight between the public sector Mahanagar Telephone Nigam Ltd ...

NEW DELHI, APRIL 14: Matching the rising mercury levels in the Capital, the fight between the public sector Mahanagar Telephone Nigam Ltd (MTNL) and the Income Tax (I-T) Department appears to be set for another round. Close on the heels of last month’s action when the I-T department slapped a Rs 209-crore tax notice on MTNL for the financial year 1996-97 and then froze its bank accounts for not paying up, the I-T department has opened yet another tax claim on MTNL. This time for Rs 200 crore for the financial year 1997-98.

While MTNL chief S Rajagopalan told The Indian Express that he planned to claim damages from the I-T department for “loss in market capitalisation and brand equity” — its market capitalisation fell by Rs 1,800 crore and its GDR fell by $2 on its bank accounts being frozen on March 27 — right now MTNL seems to be on the losing side. Committee on Disputes, headed by the Cabinet Secretary, which decides on cases involving two government departments, yesterday refused permission to MTNL to challenge the I-T department’s tax calculation method before the Tax Tribunal. It is to be seen what action MTNL will take now.

MTNL wrote to the Central Board of Direct Taxes (CBDT) chief last week to ask for certain minimum safeguards while handling “high-end” tax-payers. The crux of the dispute between the I-T department and MTNL pertains to what exactly is taxable — all revenues or revenues net of licence fees paid to the Government.

While MTNL said the portion of its revenue that it shared with the Department of Telecommunications (DoT) as licence fees should not be counted as its earnings, the I-T department thinks otherwise.

Last month, after MTNL refused to pay Rs 209 crore of extra tax, the I-T department froze all MTNL’s bank accounts. This claim pertains to the financial year 1996-97 in which MTNL had claimed that the revenue it shares with the DoT as licence fees cannot be taxed. The I-T Department on the other hand maintained that even this part of MTNL’s revenue would be taxed.

Speaking to The Indian Express, MTNL Chairman and Managing Director S Rajagopalan said: “It is not as if MTNL is a tax dodger. In fact, we are among the highest tax-paying PSUs and pay almost Rs 600 crore annually as taxes. In this case the extra amount demanded by the I-T department is a disputed amount since they are demanding taxes on the amount we pay to the DoT, which again is a Government department, as licence fees.”

Says an irate Rajagopalan: “The I-T Department’s move caused a loss of around Rs 1,800 crore in market capitalisation on MTNL shares in the domestic and overseas market. Since the Government itself owns 56.25 per cent of MTNL’s shares, the I-T department’s move has caused a loss of over Rs 1,000 crore to the Government itself for recovering Rs 209 crore.”

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“The I-T department wrote to all MTNL’s 14 banks to pay Rs 206 crore from its account against their dues or freeze these accounts. This is grossly unfair because if each bank debited from our account, we would have paid the I-T department over Rs 2,880 crore,” he stated.

What has irked the MTNL brass is the fact that the I-T department chose to freeze its accounts even though the matter was pending before the Committee on Disputes (CoD), headed by the Cabinet Secretary, which is still evaluating the arguments on either side.

Following the I-T Department’s freezing of MTNL’s accounts, the MTNL dragged it to Delhi High Court to determine whether the action was legal or illegal. However, the CoD, which met here yesterday, refused to grant permission to the MTNL to take the matter to the Tax Tribunal for redressal on the actual logic of tax calculation.

I-T sources said the MTNL has shown scant regard for the CoD in the past. Two months back when the Department reopened the assessment case pertaining to 1996-97 under Section 143 A, the Department sent a Commissioner rank officer to Rajagopalan to convince him about the case. I-T officials said Rajagopalan assured them that he would get back to them after the company’s board meeting in March. However, instead of getting back it went to the CoD. Even there, when the CoD advised it not to go to court, it disregarded the direction and filed a writ petition in Delhi High Court which is still pending.