Mumbai: The TDS (tax deducted at source) wing of the income-tax (I-T) department in Mumbai has detected a record Rs4,000 crore in non-payment of TDS in the first 11 months of the fiscal year, tax officials familiar with the development said.
“Our surveys will significantly improve collection of TDS in future. Last fiscal we had detected only Rs60 crore in non-payment of TDS,” an I-T official told Mint. He did not want to be named because he is not authorized to speak with the media.
The I-T department’s surveys haven’t spared even the Reserve Bank of India (RBI), (over commissions paid by it to banks), besides companies such as Reliance Industries Ltd (RIL) and Jet Airways (India) Ltd.
Some of the companies concerned have formed a joint forum to examine the issue and decide on a course of action.
Under I-T norms, surveys are conducted to verify books of accounts, stock, cash and any document lying in the business premises of the taxpayer.
Net direct tax collections from April 2010 to January 2011 amounted to Rs3.18 trillion, up 20.4% from Rs2.64 trillion a year earlier. Mumbai makes up about one-third of the country’s total direct tax collections.
According to data released by the finance ministry, over the last 18 months, the I-T department’s Directorate of Transfer Pricing has detected mispricing of Rs33,784 crore. Action on these cases has prevented the shifting of an equivalent amount of money outside India, said a finance ministry media statement in January.
Although the department does not expect to collect tax on all the alleged cases of mispricing, filing them has a positive impact on future collections, said a senior tax department official, who spoke on condition of anonymity. Tighter enforcement is expected to act as a deterrent and increase the incidence of voluntary compliance in future, the official added.
In the first 11 months of fiscal 2011, the tax authorities in Mumbai conducted surveys on companies belonging to different sectors such as real estate, aviation, pharmaceuticals, healthcare and media.
“While the survey in some cases has been concluded, others are still pending,” said a third I-T official.
According to him, the department on 15 February conducted a survey on land lease transactions by the Mumbai Metropolitan Region Development Authority (MMRDA) in the last three years. MMRDA is the state-level apex body for planning and co-ordination of development activities in Mumbai.
The agency has found that at least 90 firms allegedly did not deduct TDS on the payment made to MMRDA for leasing land. The list of such firms includes RIL, Wadhwa Group and Parinee Realty Pvt. Ltd among others. The tax authority now seeks to raise around Rs1,200 crore from these firms.
“The law requires deduction of tax at source on any payment made for lease/sublease of land or building because such amount comes in the definition of rent under section 194-I of the I-T Act,” the official added.
An RIL spokesperson declined to comment on the issue, while an email and several phone calls to the office of Vipul Shah, managing director of Parinee Realty, remained unanswered.
Srini Gopalan, chief financial officer of Wadhwa Group, said in an email: “We have just received the notice last evening and have to still go through it in detail. These notices as you are aware, have been received en masse by a lot of companies too as this is to be a common issue to all those who have received similar notice.”
He said that all the companies have formed a common forum and will jointly look into this issue, and take appropriate measures and reply to it or appeal against it.
“However, to the best of the administration and legal/taxation teams advice in concurrence with the rules applicable, there was no TDS to be deducted since the amount was towards land premium, wherein there was no TDS deduction to be made and it was not a lease/rent amount on which TDS is deductible,” Gopalan said. “We have also been advised by professionals that this matter has been well covered by Supreme Court judgements in the past.”
In mid-January, the department surveyed India’s central bank and claimed that RBI did not deduct tax on agency commission of more than Rs800 crore paid by it to banks for doing government business since 2007.
An RBI spokesperson said in an email response to Mint: “The I-T department had asked RBI about the amount of agency commission paid by RBI to banks for doing government business. We have informed the I-T department that as per a CBDT (Central Board of Direct Taxes) circular of 2003, RBI is exempt from deducting TDS on agency commission paid by it to banks for doing government business.”
However, the department’s contention is that the CBDT circular was in force only till 2006, and RBI should have deducted tax at the rate of 10% on the agency commission.
In the case of aviation firms such as Jet Airways, Singapore Airlines Ltd and Go Airlines (India) Ltd or GoAir, the tax authority has observed that the companies had allegedly not deducted tax on passenger service fee paid to the Airports Authority of India (AAI) since the 2007-08 fiscal year.
“We have found that Jet Airways had paid Rs1,000 crore to AAI as passenger service fee, but not deducted tax at source. The total liability comes to around Rs100 crore,” said the first official quoted earlier.
According to him, the total TDS amount due to the department from these airlines is more than Rs1,500 crore.
Jet Airways said the passenger security fee is a levy imposed on travellers by airports in consultation with the government of India. “Airlines are merely discharging the obligations cast on them as an agent to recover this levy from the passengers and pass on to the airport operators, who are the principals,” said Jet Airways senior vice-president Shivkumar. “Airport operators have also obtained a nil tax deduction certificate from the income-tax department on such payments and passed on the airlines to comply with it. Hence, deduction of taxes towards TDS is not called for.”
“Jet Airways has not violated any provisions of the Income-tax Act and rules, and had deduced applicable taxes wherever necessary,” he said.
Singapore Airlines and GoAir declined to comment on the matter.
In November last year, the I-T department had issued show-cause notices to a few television channels and production houses for allegedly not deducting TDS on payments made towards professional and technical services for three-and-a-half years between 1 April 2007 and 30 September 2010.
The department had carried out a survey in October 2010 on a few firms, including Star India Pvt. Ltd (Star Plus), Multi Screen Media Pvt. Ltd (Sony), Viacom 18 Media Pvt. Ltd (Colors) and Zee Entertainment Enterprises Ltd (Zee TV), to scrutinize tax payments. The agency found that most of the firms had deducted tax at 2% instead of 10% as prescribed in the norms.
An I-T department report on the channels and some production houses, reviewed by Mint, had pegged the total tax liability at Rs300 crore, including interest.
A show-cause notice is not an indictment. It only requires the company that receives such a notice to explain its position, typically within a month.
A Star India spokesperson said in an email response to Mint: “Star has received a show-cause notice from the TDS wing yesterday to explain appropriateness of TDS in respect of carriage fees payment and revenue share received from telecom companies on SMS revenues. Star is of the opinion that the withholding tax positions adopted by the company are in line with the current provisions of the Income-tax Act. We shall soon be filing our detailed and formal response with the department.”
The official spokesperson of both Zee Entertainment Enterprises and Multi Screen Media declined to comment, while Viacom 18 said that it would not like to participate in the story.
Anushree Chandran, P.R. Sanjai and Aveek Datta contributed to this story.