The income tax department has served a demand notice of Rs. 1067 on Bharti Airtel for non-payment of TDS on overseas operations alleging a breach of sections 201 (consequences of failure to deduct or pay taxes) and section 195 (any person responsible for paying to a non-resident) of the I-T Act.

This could prove to a major setback to the company who is struggling with the costs of its African operations and roll out of 3G services.

Airtel said it would appeal against the notice saying that it has overseas operations spanning over 19 countries. The IT department however does not buy the argument saying that place of operations or company’s properties does not matter.

"We are fully compliant on all applicable Income tax provisions. This demand notice, pertaining to applicability of withholding tax on payments made to international operators, is not justified and we will take appropriate legal recourse", said Bharti Airtel.

The dues against Airtel as mentioned in the notice are related to past for financial years, which are are for 2007-08 (Rs 202 crore), 2008-09 (Rs 329.9 crore), 2009-10 (Rs 313.6 crore) and 2010-11 (Rs 221.7 crore), in lieu of payments made by the company to “non-resident mobile service providers”.