No Income Tax on FCCB proceeds, SC rules on RCom

forexThe Supreme Court on Monday dismissed the petition filed by the Income-Tax Department against Reliance Communications on taxing of the proceeds of Foreign Currency Convertible Bonds (FCCBs), said the telecom operator.

The Supreme Court order has quashed contingent tax liability of RCOM for about Rs 4,800 crore.

During Financial Year 2006-07, Reliance Communications had issued FCCBs, as per the extant Guidelines of the Reserve Bank of India and applicable laws, aggregating US $1.5 billion, which amounted to around Rs 6,485 crore at the time.

FCCB refers to money raised by a company from overseas markets by selling bonds (debt) in that market.

Typically, income from loans is not taxed. But Income-Tax department took the view to assess the FCCB proceeds as ‘unexplained cash credits’ and had raised tax demands on the amount.

The decision was delivered by Supreme Court bench of Justice Kurian Joseph and Justice Rohinton Fali Nariman.

Earlier, the Income-Tax Appellate Tribunal and the Hon’ble Bombay High Court had also upheld RCOM’s appeal against the order of the Income-Tax Department.

The ruling is likely to come as a major relief to all Indian companies that have, or plan to raise debt from outside the country.