In a move to plug loopholes that led to the alleged tax evasion by telecom giant Vodafone, the Income-Tax Department will make it mandatory for firms to submit information to it online before remitting payments to foreign companies, from July this year.
“The information … shall be furnished electronically to the website designated by the Income Tax Department, and thereafter a signed printout of the said form shall be submitted prior to remitting the payment,” according to a new rule of the I-T Department.
This rule, also applicable to people remitting money to non-residents, will be applicable from July one, as the software in this regard is being prepared, official sources said.
“This will help us monitor such transactions on a real time basis, and catch the evader, if there is a tax liability,” a source said.
Currently, such information is filed by the company concerned to the RBI manually and it takes time for the I-T Department to receive a copy of that.
Anyone making payment to a non-resident will have to file information online in the new form 15CA.
For this, a sub-section (6) has been inserted under Section 195 of the Income-Tax Act. It is under this Section along with others that the Income-Tax Department had asked Vodafone to pay capital gains tax of 1.7 billion dollars for the 11 billion dollar overseas acquisition of Hutchison Essar (now Vodafone Essar).
Section 195 says, “Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest or any sum chargeable under this act (other than interest on securities and salary) shall deduct income tax thereon at the rates in force.”
Vodafone had contested the move on the grounds that as it had acquired the entire share capital of non-resident company CGP (Holdings) from Hutchison Telecommunication International Ltd (HTIL), a Cayman Islands company, the share capital purchase was paid outside India without deducting tax at source.
The matter then went for litigation with the Bombay High Court upholding the Income-Tax Department’s position and ruling that the company was liable to pay capital gains tax on the purchase of shares in Cayman Islands.
Vodfone then filed a petition before the Supreme Court. The apex court dismissed the petition and ordered the Revenue Department to first dispose of Vodafone’s objections regarding the absence of jurisdiction, and if the company did not agree with the decision, it could go directly to the Bombay High Court.