Wipro moves PMO over tax demand

Other IT companies seek support of the IT ministry.

Wipro has approached the Prime Minister's Office to intercede with the revenue department over a Rs 261.4 crore income-tax notice served on it.

Some of the other information technology companies that have been served with similar notices have sought the support of the information technology ministry.

The government should consider issuing a notification in the forthcoming Budget to clarify the scope of the tax holiday on computer exports, they said.

Wipro has made a formal representation to the Central Board of Direct Taxes and is considering obtaining a stay on the notice from court. A decision on whether to appeal is expected after a Wipro board meeting on Friday.

In response to a plea from Nasscom to resolve the issue, income-tax department officials have said since the issue is sub judice "" it has been taken up by the Income Tax Commissioner (Appeals) "" they will have to await a verdict. But the industry is hopeful that intervention by the PMO and the IT ministry will tilt the scales in its favour.

The issue pertains to a demand raised by the income tax department on Wipro by denying it a tax holiday on some of its units located in a Bangalore software technology park, under Section 10A of the Income Tax Act, 1961, which gives a 10-year tax holiday for setting up such units in export processing zones.

The department claimed that to qualify for the additional tax exemption under Section 10A, the company was supposed to show that it had set up new units instead of having simply expanded the existing units.

Government officials said unless one could show that "the umbilical chord has been severed" between an existing unit and a new one, the objective of the Section 10A was not fulfilled.

To prove that this has happened, the company is required to provide separate books of accounts and profit figures for the units for which it seeks the tax deduction, something that Wipro has not done.

For the Centre, the issue is important because it pertains to the scope of tax concessions for the information technology sector. Given the critical role of the sector, the government is keen to ensure that it is not seen as going back on a promise.

However, it will be difficult for the department to forgo major chunks of revenue that can make a substantial difference to tax collection.