I-T department revives 10-year-old case against Novartis

I-T department revives 10-year-old case against Novartis

Mumbai: The income-tax (I-T) department has revived a 10-year-old case against a unit of Swiss drug maker Novartis AG, appealing to the Bombay high court against a ruling made last year.

The Mumbai I-T department has filed the appeal against Novartis Consumer Health India Pvt. Ltd, an erstwhile Indian subsidiary of the Swiss pharma company, for not paying tax on pending superannuation fund deductions for the year ended March 2002.

The petition, filed in August, was admitted in the high court on 24 September. A lawyer for the I-T department confirmed the development but declined to disclose the exact tax liability of the firm. “The Bombay high court has admitted the petition on the basis of previous judgements in similar cases," this lawyer said.

Last year, the Income Tax Appellate Tribunal had ruled in favour of Novartis on the grounds that an amendment to section 43(b) of the Finance Act, 2003, is retrospective, the lawyer said.

Under the amended norms, effective April 2004, an employer’s contribution to the superannuation, provident and gratuity funds is tax-deductible if paid on or before the due date of filing a return. Hence, from the assessment year 2004-05, the employer’s contribution is eligible for deduction even if remitted late.

The appeal could set a precedent as the department now argues that section 43(b) could be applied only prospectively.

The company confirmed the appeal and said it was in compliance with all tax requirements.

“Novartis has complied with the tax provisions referred to and this position was upheld by the commissioner of income tax and an appellate tribunal," it said in an emailed communication.

The superannuation fund is a retirement benefit paid for by the employer. The company’s contribution in such cases is invested by the fund in various securities as per investment norms. Novartis had delayed its contribution to the superannuation fund in 2001-02, the I-T lawyer told Mint last week.

The unit in question was discontinued for strategic reasons, said a Novartis official familiar with the development.

Mint could not independently ascertain why the unit was shut. However, another Novartis official said it had been renamed Novartis Healthcare Pvt. Ltd. This official declined to share more details, or be identified.

Delhi-based corporate lawyer Pratibha Singh said while it was curious that the I-T department was not updated on the name change of the assessee, it doesn’t really affect the appeal.

“Since the new entity, while being converted, must have taken over all the liabilities of the old company, the department can claim the unpaid tax if it secures an order on the appeal," she said.

Novartis currently has two units operating in India. Its main businesses, such as the sales and manufacturing of prescription drugs as well as consumer health products, are performed by its listed Indian subsidiary, Novartis India Ltd.

Global research and development activity for over-the-counter (OTC) products is undertaken through another company, Novartis Healthcare, which is a wholly owned subsidiary of the Swiss group.

Novartis Consumer Health Inc., which is based in the US and runs the company’s OTC business in most world markets, had in 2006 set up its research and development unit in Thane in Maharashtra, as part of a global research initiative.