Income tax expense in the statement of comprehensive income comprises:
Year ended March 31, |
||
| 2010 | 2009 | |
| Current taxes | ||
| Domestic taxes | 1,594 | 690 |
| Foreign taxes | 465 | 345 |
| 2,059 | 1,035 | |
| Deferred taxes | ||
| Domestic taxes | (474) | (137) |
| Foreign taxes | 96 | 21 |
| (378) | (116) | |
| Income tax expense | 1,681 | 919 |
Entire deferred income tax for the year ended March 31, 2010 and 2009 relates to origination and reversal of temporary differences.
Income tax benefits of Rs. 10 crore each on exercise of employee stock options have been recognized in share premium for the year ended March 31, 2010 and 2009, respectively. Further, for the year ended March 31, 2010, a deferred tax liability of Rs. 8 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 below:
Year ended March 31, |
||
| 2010 | 2009 | |
| Profit before income taxes | 7,900 | 6,894 |
| Enacted tax rates in India | 33.99% | 33.99% |
| Computed expected tax expense | 2,685 | 2,343 |
| Foreign tax credit relief | (213) | – |
| Tax effect due to non-taxable income for Indian tax purposes | (551) | (1,513) |
| Tax effect due to set off provisions on brought forward losses | (104) | – |
| Tax reversals, net | (489) | (108) |
| Effect of exempt income | (51) | – |
| Interest and penalties | 22 | 5 |
| Effect of unrecognized deferred tax assets | 16 | 30 |
| Effect of differential foreign tax rates | 84 | 84 |
| Effect of non-deductible expenses | 26 | 30 |
| Temporary difference related to branch profits | 247 | 37 |
| Others | 9 | 11 |
| Income tax expense | 1,681 | 919 |
The foreign tax expense is due to income taxes payable overseas, principally in the United States of America. 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 fiscal 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 percent of profits or gains derived from the export of services for the first five years from commencement of provision of services and 50 percent 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 unit meeting defined conditions.
Infosys is subject to a 15% Branch Profit Tax (BPT) in the U.S. to the extent its U.S. branch's net profit during the year is greater than the increase in the net assets of the U.S. branch during the fiscal year, computed in accordance with the Internal Revenue Code. As of March 31, 2010, Infosys' U.S. branch net assets amounted to approximately Rs. 2,267 crore. As of March 31, 2010, the Company has provided for branch profit tax of Rs. 232 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 Rs. 1,052 crore and Rs. 850 crore as of March 31, 2010 and 2009, 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 year ended March 31, 2010 and 2009 is as follows:
Year ended March 31, |
||
| 2010 | 2009 | |
| Net current income tax asset/ (liability) at the beginning | (307) | (184) |
| Translation differences | (4) | – |
| Income tax benefit arising on exercise of stock options | 10 | 10 |
| Minimum alternate tax credit utilized(1) | 549 | – |
| Income tax paid | 1,754 | 902 |
| Income tax expense | (2,059) | (1,035) |
| Net current income tax asset/ (liability) at the end | (57) | (307) |
The tax effects of significant temporary differences that resulted in deferred income tax assets and liabilities are as follows:
As of March 31, |
||
| 2010 | 2009 | |
| Deferred income tax assets | ||
| Property, plant and equipment | 217 | 129 |
| Minimum alternate tax credit carry-forwards | 42 | 284 |
| Deductible temporary difference on computer software | 25 | – |
| Trade receivables | 28 | 8 |
| Compensated absences | 50 | 9 |
| Accumulated subsidiary losses | 86 | – |
| Others | 26 | 17 |
| Total deferred income tax assets | 474 | 447 |
| Deferred income tax liabilities | ||
| Intangible asset | (2) | (2) |
| Temporary difference related to branch profits | (232) | (37) |
| Available-for-sale financial asset | (8) | – |
| Total deferred income tax liabilities | (242) | (39) |
| Total deferred income tax assets | 232 | 408 |
| Deferred income tax assets to be recovered after 12 months | 368 | 409 |
| Deferred income tax liability to be settled after 12 months | (175) | (2) |
| Deferred income tax assets to be recovered within 12 months | 106 | 38 |
| Deferred income tax liability to be settled within 12 months | (67) | (37) |
| 232 | 408 | |
In assessing the realizability of deferred income tax assets, 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 year ended March 31, 2010 and 2009 is as follows:
Year ended March 31, |
||
| 2010 | 2009 | |
| Net deferred income tax asset at the beginning | 408 | 292 |
| Translation differences | 3 | – |
| Credits relating to temporary differences | 378 | 116 |
| Minimum alternate tax credit utilized(1) | (549) | – |
| Temporary difference on available-for-sale financial asset | (8) | – |
| Net deferred income tax asset at the end | 232 | 408 |
The credits relating to temporary differences during the year ended March 31, 2010 and 2009 are primarily on account of compensated absences, accumulated subsidiary losses 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; consequently the Company 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. The Company was required to pay MAT, and, accordingly, a deferred income tax asset of Rs. 42 crore and Rs. 284 crore has been recognized on the balance sheet as of March 31, 2010 and 2009, respectively, which can be carried forward for a period of ten years from the year of recognition.
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, |
||
| 2010 | 2009 | |
| Basic earnings per equity share - weighted average number of equity shares outstanding(1) | 570,475,923 | 569,656,611 |
| Effect of dilutive common equivalent shares - share options outstanding | 640,108 | 972,970 |
| Diluted earnings per equity share - weighted average number of equity shares and common equivalent shares outstanding | 571,116,031 | 570,629,581 |
For the year ended March 31, 2009, options to purchase 48,000 equity shares and 401,728 equity shares under the 1998 Plan and the 1999 Plan, respectively, were not considered for calculating diluted earnings per equity share as their effect was anti-dilutive. For the year ended March 31, 2010 there were no outstanding options to purchase equity shares which had an anti-dilutive effect.
List of subsidiaries:
| Particulars | Country | Holding as of March 31, |
|
| 2010 | 2009 | ||
| Infosys BPO | India | 99.98% | 99.98% |
| Infosys Australia | Australia | 100% | 100% |
| Infosys China | China | 100% | 100% |
| Infosys Consulting | U.S.A | 100% | 100% |
| Infosys Mexico | 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) | Thailand | 99.98% | 99.98% |
| Mainstream Software Pty. Ltd (2) | Australia | 100% | 100% |
| Infosys Sweden (3) | Sweden | 100% | – |
| Infosys Brasil (4) | Brazil | 100% | – |
| Infosys Consulting India Limited(5) | India | 100% | – |
| Infosys Public Services, Inc. (6) | U.S.A | 100% | – |
| McCamish Systems LLC(1) (Refer Note 2.3) | U.S.A | 99.98% | – |
| (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) | Mainstream Software Pty. Ltd, is a wholly owned subsidiary of Infosys Australia. |
| (3) | During fiscal 2009, the Company incorporated wholly-owned subsidiary, Infosys Technologies (Sweden) AB, which was capitalised on July 8, 2009. |
| (4) | On August 7, 2009 the Company incorporated wholly-owned subsidiary, Infosys Tecnologia DO Brasil LTDA. |
| (5) | On August 19, 2009 Infosys Consulting incorporated wholly-owned subsidiary, Infosys Consulting India Limited. |
| (6) | On October 9, 2009 the Company incorporated wholly-owned subsidiary, Infosys Public Services, Inc. |
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 plans of Infosys |
| Infosys Technologies Limited Employees' Provident Fund Trust | India | Post-employment benefit plans of Infosys |
| Infosys Technologies Limited Employees' Superannuation Fund Trust | India | Post-employment benefit plans 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 |
Transactions with key management personnel
The table below describes the compensation to key management personnel which comprise directors and members of the executive council:
Year ended March 31, |
||
| 2010 | 2009 | |
| Salaries and other short-term employee benefits | 28 | 28 |
| Other long-term benefits | 3 | 1 |
| 31 | 29 | |
IFRS 8 establishes standards for the way that public business enterprises report information about operating segments and related disclosures about products and services, geographic areas, and major customers. The Company's operations predominantly relate to providing IT solutions, delivered to customers located globally, across various industry segments. The Chief Operating Decision Maker evaluates the Company's performance and allocates resources based on an analysis of various performance indicators by industry classes and geographic segmentation of customers. Accordingly, segment information has been presented both along industry classes and geographic segmentation of customers. The accounting principles used in the preparation of the financial statements are consistently applied to record revenue and expenditure in individual segments, and are as set out in the significant accounting policies.
Industry segments for the Company are primarily financial services comprising enterprises providing banking, finance and insurance services, manufacturing enterprises, enterprises in the telecommunications (telecom) and retail industries, and others such as utilities, transportation and logistics companies. Geographic segmentation is based on business sourced from that geographic region and delivered from both on-site and off-shore. North America comprises the United States of America, Canada and Mexico, Europe includes continental Europe (both the east and the west), Ireland and the United Kingdom, and the Rest of the World comprising all other places except those mentioned above and India.
Revenue and identifiable operating expenses in relation to segments are categorized based on items that are individually identifiable to that segment. Allocated expenses of segments include expenses incurred for rendering services from the Company's offshore software development centers and on-site expenses, which are categorized in relation to the associated turnover of the segment. Certain expenses such as depreciation, which form a significant component of total expenses, are not specifically allocable to specific segments as the underlying assets are used interchangeably. Management believes that it is not practical to provide segment disclosures relating to those costs and expenses, and accordingly these expenses are separately disclosed as 'unallocated' and adjusted against the total income of the Company.
Fixed assets used in the Company's business are not identified to any of the reportable segments, as these are used interchangeably between segments. Management believes that it is currently not practicable to provide segment disclosures relating to total assets and liabilities since a meaningful segregation of the available data is onerous.
Geographical information on revenue and industry revenue information is collated based on individual customers invoiced or in relation to which the revenue is otherwise recognized.
Year ended March 31, 2010 |
Financial services | Manufacturing | Telecom | Retail | Others | Total |
| Revenues | 7,731 | 4,506 | 3,661 | 3,035 | 3,809 | 22,742 |
| Identifiable operating expenses | 3,068 | 1,993 | 1,284 | 1,243 | 1,544 | 9,132 |
| Allocated expenses | 1,953 | 1,139 | 926 | 767 | 964 | 5,749 |
| Segment profit | 2,710 | 1,374 | 1,451 | 1,025 | 1,301 | 7,861 |
| Unallocable expenses | 951 | |||||
| Operating profit | 6,910 | |||||
| Other income, net | 990 | |||||
| Profit before income taxes | 7,900 | |||||
| Income tax expense | 1,681 | |||||
| Net profit | 6,219 | |||||
| Depreciation and amortization | 942 | |||||
| Non-cash expenses other than depreciation and amortization | 3 |
Year ended March 31, 2009 |
Financial services | Manufacturing | Telecom | Retail | Others | Total |
| Revenues | 7,358 | 4,289 | 3,906 | 2,728 | 3,412 | 21,693 |
| Identifiable operating expenses | 3,042 | 1,830 | 1,431 | 1,120 | 1,347 | 8,770 |
| Allocated expenses | 1,942 | 1,133 | 1,033 | 720 | 900 | 5,728 |
| Segment profit | 2,374 | 1,326 | 1,442 | 888 | 1,165 | 7,195 |
| Unallocable expenses | 774 | |||||
| Operating profit | 6,421 | |||||
| Other income, net | 473 | |||||
| Profit before income taxes | 6,894 | |||||
| Income tax expense | 919 | |||||
| Net profit | 5,975 | |||||
| Depreciation and amortization | 767 | |||||
| Non-cash expenses other than depreciation and amortization | 7 |
Year ended March 31, 2010 |
North America | Europe | India | Rest of the World | Total |
| Revenues | 14,972 | 5,237 | 270 | 2,263 | 22,742 |
| Identifiable operating expenses | 6,067 | 2,093 | 80 | 892 | 9,132 |
| Allocated expenses | 3,784 | 1,325 | 68 | 572 | 5,749 |
| Segment profit | 5,121 | 1,819 | 122 | 799 | 7,861 |
| Unallocable expenses | 951 | ||||
| Operating profit | 6,910 | ||||
| Other income, net | 990 | ||||
| Profit before income taxes | 7,900 | ||||
| Income tax expense | 1,681 | ||||
| Net profit | 6,219 | ||||
| Depreciation and amortization | 942 | ||||
| Non-cash expenses other than depreciation and amortization | 3 |
Year ended March 31, 2009 |
North America | Europe | India | Rest of the World | Total |
| Revenues | 13,736 | 5,705 | 284 | 1,968 | 21,693 |
| Identifiable operating expenses | 5,716 | 2,284 | 62 | 708 | 8,770 |
| Allocated expenses | 3,624 | 1,507 | 76 | 521 | 5,728 |
| Segment profit | 4,396 | 1,914 | 146 | 739 | 7,195 |
| Unallocable expenses | 774 | ||||
| Operating profit | 6,421 | ||||
| Other income, net | 473 | ||||
| Profit before income taxes | 6,894 | ||||
| Income tax expense | 919 | ||||
| Net profit | 5,975 | ||||
| Depreciation and amortization | 767 | ||||
| Non-cash expenses other than depreciation and amortization | 7 |
No client individually accounted for more than 10% of the revenues in fiscal 2010 and 2009.
The Company is subject to legal proceedings and claims which have arisen in the ordinary course of its business. The Company’s management does not reasonably expect that legal actions, when ultimately concluded and determined, will have a material and adverse effect on the results of operations or the financial position of the Company.
The Company has received demands from the Indian taxation authorities for payment of additional tax of Rs. 214 crore including interest of Rs. 39 crore, upon completion of their tax review for fiscal 2005 and fiscal 2006. The demands for fiscal 2005 and fiscal 2006 were received during fiscal 2009 and fiscal 2010, respectively. The tax demands are mainly on account of disallowance of a portion of the deduction claimed by the Company under Section 10A of the Income tax Act. The deductible amount is determined by the ratio of export turnover to total turnover. The disallowance arose from certain expenses incurred in foreign currency being reduced from export turnover but not reduced from total turnover.
The Company is contesting the demands and management and its tax advisors believe that its position will likely be upheld in the appellate process. No additional provision has been accrued in the financial statements for the tax demands raised. Management believes that the ultimate outcome of this proceeding will not have a material adverse effect on the Company's financial position and results of operations. The tax demand with regard to fiscal 2005 and fiscal 2006 is pending before the Commissioner of Income tax (Appeals), Bangalore.