Now, I-T smells share in GECIS stake sale

MUMBAI: The income-tax department has sent notices to Genpact, India's No-1 third party BPO company, asking for details of the $500-million deal in 2004 when GE sold off its 60% stake in GECIS (name later changed into Genpact) to two US-based private equity investors.

India's tax regime has made it a point to explore the possibility of generating tax from cross-border mergers and acquisitions on the grounds that the country has a right to claim tax on the profit generated from the business carried out in India. The notices sent to Vodafone and Genpact by the international tax division of the Department is in line with this approach.

Sources in the department said they have not quantified the tax demand possible on the deal but just asked for details of the deal. The company, set up in 1997 in Delhi with only 50 employees, have evolved by 2004 into a global leader in business services and technology solutions with 25 delivery centres spread across the US, Europe, China, Philippines and India.

The equity partners to whom GE sold its stakes are the US-based Oakhill Capital Partners and General Atlantic Partners. The sale of its shares at a $ 500 million could not escape the watchful eyes of Income tax department.

The department's thinking goes like this: though the sale of shares had taken place outside India, the capital gains have been generated from the business in India and therefore the Indian Income-tax department is entitled to demand capital gains tax on the deal.

The notice it sent to Genpact is similar the notices sent to Vodafone on the $ 10 billion Hutch-Essar sale, where the capital gain tax was estimated at $ 2 billion. Incidentally, Vodafone has challenged the Income-tax notices before the High Court of Bombay. The matter is pending before the court at present.

Pramod Bhasin, president and CEO of Genpact, told ET "We have received notices and the respective department of the company is handling it. The matter is between the company and department and hence we cannot give details".

Genpact, GE's captive outsourcing unit before the 2004 share sale, is among the pioneers of the BPO industry in the country . Even after the sale of shares to two equity partners, GE has remained the largest shareholder with 40 % stake in the company . In 2005, GECIS was renamed Genpact.