Notes to the consolidated financial statements

2.17 Income tax

Income tax expense in the statement of comprehensive income comprises :

in Rupee Symbolcrore

Year ended March 31,

2011

2010

Current taxes

Domestic taxes

2,060

1,594

Overseas taxes

564

465

2,624

2,059

Deferred taxes

Domestic taxes

(95)

(474)

Overseas taxes

(39)

96

(134)

(378)

Income tax expense

2,490

1,681

The entire deferred income tax for the years ended March 31, 2011 and March 31, 2010 relates to origination and reversal of temporary differences.

A reversal of deferred tax liability of Rupee Symbol3 crore for the year ended March 31, 2011 respectively, relating to an available-for-sale financial asset has been recognized in other comprehensive income (refer note 2.2). For the year ended March 31, 2010 a deferred tax liability of Rupee Symbol8 crore relating to an available-for-sale financial asset has been recognized in other comprehensive income.

A reconciliation of the income tax provision to the amount computed by applying the statutory income tax rate to the income before income taxes is summarized as follows :

in Rupee Symbolcrore

Year ended March 31,

2011
2010

Profit before income taxes

9,313

7,900

Enacted tax rates in India

33.22%

33.99%

Computed expected tax expense

3,094

2,685

Tax effect due to non-taxable income for Indian tax purposes

(788)

(1,058)

Overseas taxes, net

399

394

Tax reversals

(236)

(489)

Tax effect due to set off provisions on brought forward losses

(104)

Effect of exempt income

(3)

(51)

Interest and penalties

22

Effect of unrecognized deferred tax assets

19

16

Effect of differential overseas tax rates

(7)

(16)

Temporary difference related to branch profits

247

Effect of non-deductible expenses

4

26

Others

8

9

Income tax expense

2,490

1,681

The overseas tax expense is due to income taxes payable overseas, principally in the U.S. The Company benefits from certain significant tax incentives provided to software firms under Indian tax laws. These incentives include those for facilities set up under the Special Economic Zones Act, 2005 and software development facilities designated as ‘Software Technology Parks’ (the STP Tax Holiday). The STP Tax Holiday is available for ten consecutive years, beginning from the financial year when the unit started producing computer software or April 1, 1999, whichever is earlier. The Indian government, through the Finance Act, 2009, has extended the tax holiday for the STP units until March 31, 2011. Most of the Company’s STP units have already completed the tax holiday period and for the remaining STP units the tax holiday will expire by the end of March 31, 2011.

Under the Special Economic Zones Act, 2005 scheme, units in designated special economic zones which begin providing services on or after April 1, 2005 are eligible for a deduction of 100% of profits or gains derived from the export of services for the first five years from commencement of provision of services and 50% of such profits or gains for a further five years. Certain tax benefits are also available for a further period of five years subject to the STP unit meeting defined conditions.

Infosys is subject to a 15% Branch Profit Tax (BPT) in the U.S. to the extent of the U.S. branch’s net profit during the year is greater than the increase in the net assets during the year, computed in accordance with the Internal Revenue Code. As of March 31, 2011, Infosys’ U.S. branch net assets amounted to approximately Rupee Symbol2,647 crore. As of March 31, 2011, the Company has provided for branch profit tax of Rupee Symbol176 crore for its U.S. branch, as the Company estimates that these branch profits are expected to be distributed in the foreseeable future.

Deferred income tax liabilities have not been recognized on temporary differences amounting to Rupee Symbol1,466 crore and Rupee Symbol1,052 crore as of March 31, 2011 and March 31, 2010 respectively, associated with investments in subsidiaries and branches as it is probable that the temporary differences will not reverse in the foreseeable future.

The gross movement in the current income tax asset / (liability) for the years ended March 31, 2011 and March 31, 2010 is as follows :

in Rupee Symbolcrore

Year ended March 31,

2011

2010

Net current income tax asset / (liability) at the beginning

(57)

(307)

Translation differences

(10)

(4)

Income tax benefit arising on exercise of stock options

11

10

Income tax paid

2,856

1,754

Minimum Alternate Tax credit utilized (1)

549

Current income tax expense (refer note 2.17)

(2,624)

(2,059)

Net current income tax asset / (liability) at the end

176

(57)

(1) Minimum alternate tax of Rupee Symbol288 crore was recognized and utilized during the year ended March 31, 2010

The tax effects of significant temporary differences that resulted in deferred income tax assets and liabilities are as follows :

in Rupee Symbolcrore

As of March 31,

2011
2010

Deferred income tax assets

Property, plant and equipment

257

217

Minimum alternate tax credit carry-forwards

63

42

Computer software

24

25

Accrued compensation to employees

26

Trade receivables

20

28

Compensated absences

104

50

Accumulated subsidiary losses

39

86

Others

28

26

Total deferred income tax assets

561

474

Deferred income tax liabilities

Intangible asset

(2)

(2)

Temporary difference related to branch profits

(176)

(232)

Available-for-sale financial asset

(5)

(8)

Total deferred income tax liabilities

(183)

(242)

Total deferred income tax assets

378

232

Deferred income tax assets to be recovered after 12 months

392

368

Deferred income tax liability to be settled after 12 months

(63)

(175)

Deferred income tax assets to be recovered within 12 months

169

106

Deferred income tax liability to be settled within 12 months

(120)

(67)

378

232

In assessing the realization capability of deferred income tax assets, the Management considers whether some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences become deductible. Management considers the scheduled reversals of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on the level of historical taxable income and projections for future taxable income over the periods in which the deferred income tax assets are deductible, management believes that the Company will realize the benefits of those deductible differences. The amount of the deferred income tax assets considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carry forward period are reduced.

The gross movement in the deferred income tax account for the years ended March 31, 2011 and March 31, 2010 is as follows :

in Rupee Symbolcrore

Year ended March 31,

2011

2010

Net deferred income tax asset at the beginning

232

408

Translation differences

9

3

Minimum alternate tax credit utilized

(549)

Credits relating to temporary differences (refer note 2.17)

134

378

Temporary difference on available-for-sale financial asset (refer note 2.2)

3

(8)

Net deferred income tax asset at the end

378

232

The credits relating to temporary differences during the year ended March 31, 2011 and March 31, 2010 are primarily on account of compensated absences, accrued compensation to employees and property, plant and equipment.

Pursuant to the enacted changes in the Indian Income Tax Laws effective April 1, 2007, a Minimum Alternate Tax (MAT) has been extended to income in respect of which a deduction may be claimed under sections 10A and 10AA of the Income Tax Act. Consequent to the enacted change, Infosys BPO has calculated its tax liability for current domestic taxes after considering MAT. The excess tax paid under MAT provisions being over and above regular tax liability can be carried forward and set off against future tax liabilities computed under regular tax provisions. Infosys BPO was required to pay MAT, and, accordingly, a deferred income tax asset of Rupee Symbol63 core and Rupee Symbol42 crore has been recognized on the Balance Sheet as of March 31, 2011 and March 31, 2010, respectively, which can be carried forward for a period of ten years from the year of recognition.

2.18 Earnings per equity share

The following is a reconciliation of the equity shares used in the computation of basic and diluted earnings per equity share :

 

Year ended March 31,

2011

2010

Basic earnings per equity share – weighted average number of equity shares outstanding (1)

57,11,80,050

57,04,75,923

Effect of dilutive common equivalent shares – share options outstanding

1,88,308

6,40,108

Diluted earnings per equity share – weighted average number of equity shares and common equivalent shares outstanding

57,13,68,358

57,11,16,031

(1) Excludes treasury shares

For the year ended March 31, 2011, and March 31, 2010 there were no outstanding options to purchase equity shares which had an anti-dilutive effect.

2.19 Related party transactions

List of subsidiaries :

Particulars

Country

Holding as of

March 31, 2011

March 31, 2010

Infosys BPO Limited

India

99.98%

99.98%

Infosys Technologies (Australia) Pty. Limited

Australia

100%

100%

Infosys Technologies (China) Company Limited

China

100%

100%

Infosys Consulting, Inc.

U.S.

100%

100%

Infosys Technologies S. de R. L. de C. V.

Mexico

100%

100%

Infosys BPO s.r.o. (1)

Czech Republic

99.98%

99.98%

Infosys BPO (Poland) Sp.Z.o.o (1)

Poland

99.98%

99.98%

Infosys BPO (Thailand) Limited (1)(3)

Thailand

99.98%

Infosys Technologies (Sweden) AB

Sweden

100%

100%

Infosys Tecnologia do Brasil Ltda

Brazil

100%

100%

Infosys Consulting India Limited (2)

India

100%

100%

Infosys Public Services, Inc.

U.S.

100%

100%

Infosys Technologies (Shanghai) Company Limited (4)

China

100%

McCamish Systems LLC (1) (refer note 2.3)

U.S.

99.98%

99.98%

Notes : (1) Infosys BPO s.r.o., Infosys BPO (Poland) Sp.Z.o.o, Infosys BPO (Thailand) Limited and McCamish Systems LLC are wholly-owned subsidiaries of Infosys BPO.
  (2) Infosys Consulting India Limited is a wholly-owned subsidiary of Infosys Consulting.
  (3) During the year ended March 31, 2011 Infosys BPO (Thailand) Limited was liquidated.
  (4) On February 21, 2011 Infosys incorporated a wholly-owned subsidiary, Infosys Shanghai.

Infosys has provided guarantee for performance of certain contracts entered into by its subsidiaries.

List of other related parties :

Particulars

Country

Nature of relationship

Infosys Technologies Limited Employees’ Gratuity Fund Trust

India

Post-employment benefit plan of Infosys

Infosys Technologies Limited Employees’ Provident Fund Trust

India

Post-employment benefit plan of Infosys

Infosys Technologies Limited Employees’ Superannuation Fund Trust

India

Post-employment benefit plan of Infosys

Infosys BPO Limited Employees’ Superannuation Fund Trust

India

Post-employment benefit plan of Infosys BPO

Infosys BPO Limited Employees’ Gratuity Fund Trust

India

Post-employment benefit plan of Infosys BPO

Infosys Technologies Limited Employees’ Welfare Trust

India

Employee Welfare Trust of Infosys

Infosys Science Foundation

India

Controlled trust

Note : Refer note 2.12 for information on transactions with post-employment benefit plans mentioned above.

Transactions with key management personnel

The table below describes the compensation to key management personnel who comprise directors and members of the executive council :

in Rupee Symbolcrore

Year ended March 31,

2011

2010

Salaries and other employee benefits

33

31