Infosys contests Rs577-cr demand; says taxman misreading rules

Infosys Ltd, India's second-largest software services exporter, said today it would challenge a Rs577-crore tax demand raised by the income tax department earlier this month.

The demand relates to certain tax benefits on income from software development at clients' locations overseas and revenue from special economic zones in India, Infosys said in a statement.

It said the latest tax demand disregards a clarification by the government in January.

Infosys is also contesting similar tax demands for the fiscal years 2005 through 2008, according to a recent filing with the US Securities and Exchange Commission.

"Infosys is in the process of filing an appeal before the Commissioner of Income Tax," the company said.

"The company has received demands from the Indian I-T authorities for payments of additional taxes totalling $214 million, including interest of $62 million upon completion of their tax review for fiscal 2005, fiscal 2006, fiscal 2007 and fiscal 2008," it said in the filing.

The deductible amount is determined by the ratio of export turnover to total turnover. The disallowance arose from certain expenses incurred in foreign currency being reduced from export turnover, but not reduced from total turnover, it added.

The tax demand for fiscal 2007 and fiscal 2008 also includes disallowance of portion of profit earned outside India from the STP units and disallowance of profits earned from SEZ units, it said.

"The matter for fiscal 2005, fiscal 2006, fiscal 2007 and fiscal 2008 are pending before the Commissioner of Income tax (Appeals) Bangalore," Infosys said in the filing.

On taxes in India, Infosys said in the filing, "The company, as an Indian resident, is required to pay taxes in India on the company's entire global income in accordance with Section 5 of the Indian Income Tax Act, 1961, which taxes are reflected as domestic taxes."