Indian Court Removes Obstacle to Microsoft-Nokia Merger

The factory, in the southern city of Chennai, is one of Nokia’s largest handset manufacturing plants and was seized along with its other Indian assets in September by the Indian tax authorities because of a tax dispute with the Indian government. Nokia had asked to have the seizure repealed by Thursday.

However, Nokia’s tax battle with India continues. In March, the Indian government presented the local unit of Nokia with a bill of about $340 million in back taxes over five fiscal years.

“It is a positive move forward that Nokia has been allowed to go through with its asset sale,” said Dinesh Kanabar, the deputy chief executive of KPMG India. “It was worrisome that a hypothetical demand from the Indian tax office was becoming a barrier to a global transaction.”

He added that it was unclear what Nokia’s ultimate tax liability would be, and that the matter would be decided by tax tribunals and the Indian courts.

Mr. Kanabar, who spoke with Harish Salve, the lawyer representing Nokia, said the Delhi High Court asked Nokia Finland to deposit the $365 million with India’s tax department in an escrow account as interim payment. But the court also said the amount could increase if the company’s local assets were assessed to be of a higher value.

The court clarified that once Nokia completed the sale of the Chennai factory to Microsoft, the new owner would not be liable to pay Nokia’s tax bill; that would fall to what remains of Nokia after the sale of its handset business.

Officials from the Indian tax department declined to comment on the ruling.

Nokia, which expects to close the sale of its handset division to Microsoft early next year, said that it was studying the court’s ruling and how it would affect any future tax payment to the Indian government.

“In recent months we have seen and read about many claims from the tax authorities,” Nokia said in a statement on Thursday. “We feel they are without merit and will defend ourselves vigorously in court.”

Several foreign companies like Vodafone, Royal Dutch Shell and I.B.M. are also embroiled in tax disputes with the Indian government. The Indian government’s retroactive application of tax laws and efforts to collect back taxes have made foreign companies wary of setting up operations in India.

“Foreign investors have become concerned with the vagaries of Indian tax laws and the aggressive interpretation of tax laws by the income tax department,” Mr. Kanabar said. “When India’s finance minister goes on road shows abroad, these concerns are often voiced.”

Mark Scott contributed reporting from London.