Wipro Ltd will appeal against a Rs 261 crore (Rs 2.61 billion) tax demand under Section 10A of the Income Tax Act for the profit it earns out of units located in a software technology park in Bangalore.

Companies registered with the Software Technology Parks of India are exempt from income tax on export earnings. Based on this, these companies are allowed to expand such units.

However, in Wipro's case, the tax assessment officer has held the company's expanded units in Bangalore are fresh entities, which need new licences. This demand has been served on Wipro for fiscal 2000-01.

The Rs 261 crore tax demand is only Rs 13 crore (Rs 130 million) less than Wipro's third quarter profit after tax of Rs 274 crore (Rs 2.74 billion).

According to tax analysts, Wipro has not taken unfair advantage and the assessment officer has taken "a very narrow view" of the issue.

"This kind of demand can be made on companies if they set up a totally new entity or acquire a company, which is not the case here," an analyst said.

Wipro said in a statement that it had been advised that the demand was not sustainable since neither was it consistent with judicial precedents nor was it in line with legislative intent.