Bombay HC's verdict: RComm escapes tax net on Rs 5600cr

Reliance Communications heaved a sigh of relief with a recent Bombay HC order that restrained the I-T department from taxing Rs 5600 crore of alleged income, reports CNBC-TV18's Ashmit Kumar.

A recent Bombay High Court order has allowed Rel Comm to escape a tax liability. Now importantly the I-T department had sought to add Rs 5600 crore to the taxable income of the company for FY04 and sought to do so in two parts.

In the first part the IT department argued that 50 crore shares of the company were sold to Mukesh Ambani at Rs 1 per share whereas the price prevalent at that time was Rs 53.71.

Now this, according to the tax department, resulted in an income of over Rs 2600 crore. Rel Comm responded that there was no sale of shares. In fact the shares had been pledged for securing a short-term loan of Rs 50 crore, which in fact was repaid by December 2004.

Now in the second part, the IT department argued that Reliance Infocomm was allowed to use the infrastructure of Rel Comm for 20 years for a consideration of over Rs 3,000 crore.

The IT department argued that this income should have been reflected in the balance sheet of the company for FY04. However, Rel Comm responded by saying that accounting procedures, accounting standards did allow for this fee to be distributed over the 20 years, which of course is the duration of the agreement.

Initially, earlier in 2009, Income Tax Appellate Tribunal (ITAT) had in fact ruled in favour of Rel Comm and the Bombay High Court has upheld this order.