India court quashes tax dept's $448 million block on Xiaomi's deposits -sources

NEW DELHI (Reuters) - An Indian court has quashed the income tax department's block on China-based Xiaomi Corp's fixed deposits worth 37 billion rupees ($447.65 million), two people familiar with court proceedings said on Friday.

Xiaomi and the income tax department did not immediately respond to Reuters' requests for comment.

Further details of the Karnataka state court's decision announced on Friday were not immediately available.

Indian tax officials froze the funds in February as part of an investigation into alleged tax evasion.

The investigation concerned allegations that the Chinese company purchased smartphones from its contract manufacturers at inflated costs in India, allowing it to record a smaller profit by selling them to customers and evading corporate income taxes, Reuters reported in May.

The fund freeze by income tax authorities was on top of another legal tussle Xiaomi faces where it has challenged a block on $666 million of its funds by India's federal financial crime fighting agency for alleged illegal foreign remittances.

A court is yet to pronounce a decision on the case following Xiaomi's challenge.

($1 = 82.6530 Indian rupees)

(Reporting by Aditya Kalra in New Delhi; additional reporting by Arpan Chaturvedi; Writing by Chris Thomas; Editing by Anil D'Silva)

By Aditya Kalra