Bofors - India is a soft state and one can meddle with its tax laws with impunity?

By Vijay Kumar

THE ITAT passed strictures against the Income Tax Department for its inaction in bringing to book other evaders.

The Tribunal observed,

We are surprised to observe that though the Department has proceeded against the assessee, no action seems to have been taken against either Services or Ottavio Quattrocci and other related entities, by the Income Tax Department. Bofors admittedly paid the amounts to the assessee, AE Services, Quotrocci and other entities. It’s liability for withholding tax is built in. Mr Ottavio Quatrocci was living in India for a considerable time. The issue about his tax residence status should have been verified.

In our view the Department should have carefully examined the issues about their taxability and their having PE in India and appropriate proceedings should have been undertaken to assess and recover taxes. We may point out there exists a serious issue apropos Bofors for not having deducted withholding tax i.e. TDS, from such payments to the assessee/ Svenska, AE Services, Quottrocci. In our view, to enforce the rule of law, these steps were desirable to bring all the relevant income tax violations to a logical end by the Income Tax Department. Inaction in this regard may lead to a non-existent undesirable and detrimental notion that India is a soft state and one can meddle with its tax laws with impunity.

You can get an exhaustive analysis of the ITAT order in TII (www.taxindiainternational.com)