The Authority for Advance Rulings (AAR) has ruled that the $125-million class-action suit settlement done by Mahindra Satyam (formerly Satyam Computer Services LTD.) is taxable.

According to the AAR ruling, the Indian IT firm has to deduct 30 per cent tax on $125 million and the balance amount will go to the class-action settlement.

The U.S. investors, who held American Depository Receipts or ADR of Satyam Computer Services, filed a class action suit against the company after Ramalinga Raju, former chairman of the company, admitted to a fraud in January, 2009.

“... the settlement amount will be regarded as sum chargeable under the provisions of the Act as required under Sec.195 of the Income-Tax Act...the time to deduct the tax is when the amount is moved from the segregated account in India to the initial escrow account in the U.S....,” the AAR ruling dated August 27 said.

“... the rate at which the tax is to be deducted is at 30 per cent,” the ruling said.

When contacted Mahindra Satyam officials refused to comment.

Tech Mahindra, which took over Satyam in 2009, had to settle all pending litigations with several investors who had claimed losses due to the shares of the firm plunging on bourses, including the New York Stock Exchange where Satyam ADRs were listed.

In February, 2011, Mahindra Satyam had said it reached a settlement with the lead plaintiffs in the class-action filed against Satyam in the United States District Court, Southern District Court of New York.

Mahindra Satyam had said it has agreed to pay $125 million subject to the approval of the Reserve Bank of India and other statutory bodies.

The settlement amount included taxes, compliance costs, attorney’s fees and expenses, it had added.

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