The I-T department, which believes that Hutch-Vodafone deal falls under the
capital gains tax ambit in India, may scrutinise similar
transactions.
Transfer of beneficial interest of any asset in the country
was liable to capital gains tax, a department source said. The source said
Hutchison and Vodafone have sought approval from the Indian authorities,
including Foreign Investment Promotion Board (FIPB), as the asset is in the
country. The department thinks this would hold true for all transactions where
the asset is located here, hence the move to examine such
deals.
According to Section 911 of the Income-Tax Act, if any property
located in the country is transferred, it would attract capital gains tax. The
section does not provide for an exemption. However, sources familiar with the
Hutch-Vodafone transaction denied the I-T department’s claims. They point out
that the transaction involves sale of Mauritius-based companies, which control a
67% interest in Hutch-Essar, the Indian entity. Thus, the provisions of the
double-taxation treaty clearly hold.
Incidentally, when GE partially
divested its stake in Genpact (then Gecis) to a clutch of private equity funds,
it did not pay capital gains tax. The transaction too involved Mauritius-based
entities. The I-T department recently shot off a letter to Hutchison Essar
asking it to impress upon Hutch Telecom International to pay $1.9 billion by way
of capital gains.
“...it has come to our knowledge that HTIL has made
substantial gains from their investment in Hutchison Essar. You are requested to
impress upon HTIL to discharge their tax liabilities on the gains
made.
“Your attention is directed to Section 195 of the Income-Tax Act
that casts an obligation on a person responsible for paying any sum — which is
chargeable to tax in India — to a foreign company to deduct income tax at source
at the time of payment credit. Thus, both the payer and the payee are required
to discharge their obligations/liabilities as provided in the Income-Tax
Act.
“Your stand that you are not in a position to submit requisite
details since you are not a party to the transaction is not correct since the
shares of your company are being sold and you can provide the information from
the parties concerned,” it said.
Hutchison recently sold its majority
holding in Hutch-Essar to Britain’s Vodafone in a deal valued at $18.8 billion.
The capital gains tax is imposed at 20%. As the company is not listed, there
would be no long-term capital gains tax exemption, in the I-T department’s
view.
Banks want RBI to pick their auditors January, 05th 2007 In
a strange turn of events, nationalised banks have spurned a Finance Ministry
offer to let them choose their own auditors. They would rather have the RBI pick
their auditors.Most nationalised banks are believed to have conveyed to the
Reserve Bank that they would rather let it appoint auditors for them instead of
appointing their own auditors. Last year, the Finance Ministry granted PSU banks
the power to decide their own auditors. This drew protests from CAs, who felt
banks would appoint auditors who would favour them. That seems to have pushed
the banks to ask the RBI to do the choosing. Sunil Goyal, Chairman, Western
Region , ICAI says, "There are many CA firms in the eligible category, for banks
to choose 40 or 50 among them would have been difficult." Until now, the RBI
appointed thousands of branch auditors for PSU banks. The ICAI shortlists about
20,000 CA firms from all over India and forwards the list to the RBI. The RBI
then allots each PSU bank a few thousand auditors to audit their various
branches. This ensures wide distribution of work for CA firms, which could have
been disturbed, had banks agreed to appoint their own auditors. But now, CA
firms can breathe easy.Money Bombay Stock Exchange National Stock Exchange Bank
finanace Income Tax Stock Commodities Banking Bank finanace Income Tax Stock
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