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I-T dept, Public Interest Litigation against govt, Slocum over tax evasion
May, 04th 2009

A public interest litigation (PIL) has been filed before Allahabad High Court against the government, income-tax department and Delhi-based Shiv Nadar group company Slocum Investment, alleging tax evasion using the Mauritius route.

The PIL, filed by a chartered accountant Atul Kakkar, alleges that around Rs 3,500 crore was siphoned out of India using Mauritius-based overseas commercial bodies (OCBs) allegedly managed from India. The list of respondents in the case include Slocum Investment, Union of India, finance ministry and Central Board of Direct Taxes (CBDT).

The petitioner has alleged that the government has not taken steps to check the loss of revenue arising from the complex round-trip transaction using Mauritius, with which India has a double taxation avoidance treaty.

When contacted an HCL spokesperson said: Since it is a PIL, we believe it would not be appropriate to comment on the issue at the moment.

According to the PIL, the modus operandi employed by the HCL group to circumvent tax payable in India was sent to all the authorities concerned but to no avail.

It consisted of HCL Technologies shares of Rs 4 face-value each being sold to Mauritius-based OCBs controlled by the Shiv Nadar group prior to listing for Rs 50 a share.

The sale was grossly undervalued as evident from the listing price of Rs 530. The shares were subsequently sold by the OCBs in the Indian stock markets at astronomical prices and resulted in value addition of Rs 3,500 crore.

The petitioner contends that while on the one hand the Nadar-controlled OCBs made huge profits that were not taxed in India even though they were managed from here, Slocum Investment filed its transactions in the shares as capital gains rather than business income at the time of declaration of income. In fact, these transactions were filed as long-term capital losses, which were offset against long-term capital gains from other transactions in shares.

The petitioner contends that his stand has been vindicated by an ITAT judgement of March 2006 in the case of Slocum Investment Vs. deputy commissioner of income tax, by Delhi Tribunal reported in 2007, wherein the departmental representative (DR) also acknowledged that the said shares were held as stock in trade and, thus, income arising out of sale of the said shares should be treated as business income.

Thus it is very clear from the above facts that there has been considerable flight of capital out of the country by deliberate undervaluation of the assets, claims the petitioner.

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