After Vodafone, I-T slaps taxes on Vedanta, Indian Rayon

By siliconindia   |   Thursday, 05 February 2009, 17:00 IST
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New Delhi: The Income Tax (I-T) department is on a continuous foray to squeeze out cash through tax demand, with UK based Vedanta Resources and Aditya Birla group firm Indian Rayon being the latest in a row to face a potential tax demand of around $183 million (900 crore) and $9 million (45 crore) respectively, for their failure to deduct taxes on payments to buy Indian assets. After issuing it for Vodafone, I-T department has issued the notices under Section 201 of the Income Tax Act, which deals with 'consequences of failure to deduct or pay'. Vedanta had acquired 51 percent stake in Sesa Goa in April 2007 and Indian Rayon had picked up 16.45 stakes in AT&T's Idea Cellular in 2005. The department contends that Indian Rayon and Vedanta ought to have deducted tax since the sellers (AT&T and Mitsui respectively) have earned capital gains from selling their stake. Long-term capital gain tax attracts a rate of 20 percent, reports Business Standard. I-T department levied the taxes treating them as agents of AT&T and Mitsui. Under the Income Tax Act (Section 163), a local firm making or receiving payment from foreign companies is considered an agent because the responsibility for paying the tax lies with it. Vedanta has challenged the notice in Karnataka High Court but its success in the case of Vodafone leaves the department unfazed of its consequences. In case of the Aditya Birla group, an official acknowledged that the department has sought some additional information on the transaction with AT&T, but no tax demand has been raised so far. The official added that Indian Rayon had secured a no-objection certificate from the I-T department before paying AT&T the money.