I-T questions Mukesh's plea

The income-tax department has questioned Reliance Industries Chairman and Managing Director Mukesh Ambani's contention that the benefit accrued from the transfer of 500 million shares of Reliance Infocomm to him in March 2004 was not income.

This follows a clarification by Ambani to the department that these shares of Re 1 face value were transferred by Reliance Infocomm's promoter Reliance Communications Infrastructure Ltd (RCIL) to his demat account as pledge.

Ambani replied to the department after it had sent a notice asking him to explain why he should not pay tax on a deemed income of Rs 2,635 crore for the 2004-05 assessment year.

But the I-T department contested this as it felt that nobody would transfer shares worth Rs 2,685 crore against a loan of Rs 50 crore.

Also no information was given to the depository about the pledge or lock-in period regarding the shares. The department has thus contended that it was actually a purchase consideration.

When contacted, the Reliance spokesperson said "the facts based on which the query has been raised by the income tax department are incorrect and hence any conclusion drawn from the said facts will only be faulty. Since the entire transaction was annulled, no income accrues. No tax can be levied on notional income. This issue has been widely publicised in the past many times."

The department's notice had said that going by Reliance Infocomm's valuation at Rs 53.71 per share in November 2002, the 500 million shares were worth Rs 2,685 crore. Ambani provided loan of Rs 50 crore to Reliance Infocomm.

The tax authorities felt that Ambani had accrued an income gain of Rs 2,635 crore (subtracting Rs 50 crore from Rs 2,685 crore) according to the provisions of Section 2(24)(iv) of the Income-tax Act, 1961.