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Nokia suffered a jolt on Friday when the Supreme Court refused to lift the restraint on sale of its Indian assets, including the Chennai plant, as part of the handset maker's global deal with the Microsoft.
The apex court dismissed Nokia's plea against the Delhi High Court order directing its parent company in Finland to give an undertaking to fulfil the conditions relating to payment of tax dues.
The apex court's decision not to interfere with the High Court order assumes importance as it would put hurdles on Nokia to transfer its Chennai plant which is a part of the $7.2 billion global deal with Microsoft.
A bench, comprising justices A R Dave and Shiva Kirti Singh, declined to accept Nokia's plea for a direction to the Income Tax department for lifting of the stay on transfer of assets, including the Chennai manufacturing plant, in view of the deal with Microsoft.
The apex court had earlier asked the Nokia India Pvt Ltd to come up with a concrete proposal to settle its tax row with the income tax department.
The handset maker had said it would approach the tax authorities for their approval for the transfer of its assets to Microsoft along with final valuation of its Indian assets.
However, when the company submitted the report of internal valuation of its Chennai plant and not that of an expert, the bench disapproved it. "This is no way. You should have got valuation report by an expert. We wanted to have some authentic valuation," the court observed.
Nokia's counsel submitted the projected tax demand is about Rs 21,000 crore (Rs 210 billion).
The Income Tax department's counsel said the company was not fair with the court and had "not come to court with clean hands".
Solicitor General Mohan Prasaran said Nokia India had made no profits but it gave Rs 3,500 crore dividend to its parent company Nokia Corporation Finland by taking money from its reserves.
"There were no profits. Dividends were paid. Dividends were paid from reserves. It appears fishy," the bench observed.
Prasaran said the tax demand of Rs 2,649 crore (Rs 26.49 billion) was a determined demand. Besides this, Rs 10,149 crore (Rs 101.49 billion) tax demand was the barest minimum that would be raised and it was coupled with interest and liabilities.
Nokia's counsel Vikaas Srivastava contended the deal with Microsoft is expected to fructify in eight to ten months and it cannot be said at this stage what will be the valuation after 10 months.
"Telephone is a very dynamic market. Things are changing very fast. What value they will pay 10 months from now we do not know," he said and added it was not yet known what demands Tamil Nadu government may raise for transfer of land or on other accounts.
Nokia said it was willing to deposit Rs 2,250 crore (Rs 22.50 billion) in escrow account or a higher amount that is received for Indian assets but a bank guarantee or undertaking for future demands is not possible.
The tax department, however, said the company did not have any new offer and termed the offer of depositing Rs 2,250 crore as "totally unreasonable".
Dismissing Nokia's plea, the bench said it was open for the tax department and Nokia to see if the dispute could be resolved and either of the two could still move the high court if need arises.
Nokia India has moved the Supreme Court challenging the decision of the Delhi High Court which asked the company to give an undertaking to fulfil the conditions relating to payment of tax dues.
The Indian arm of the Finnish handset maker has approached the apex court against the February 5 order of the High Court by which it was asked to abide by the order of December 12 last year.
While defreezing the assets of the Finnish firm in India, including in Chennai, the High Court had imposed certain conditions on it.
"Nokia Finland will be bound by the statement that they shall be jointly liable and shall pay tax demand determined and payable under Section 201/201(1A), interest and penalty thereon.
"Nokia Finland shall be liable to pay taxes, including penalty and interest due, and payable by them as determined under the Income Tax Act," the High Court had said.