The Central Board of Direct Taxes (CBDT) on Tuesday said that the tax department will not resort to coercive methods to recover the minimum alternate tax allegedly pending against FIIs on capital gains made by them if the Justice AP Shah panel set up on the issue recommends so. However, the department will ensure that chronic evaders are unable to get away without facing court cases and the CBDT is setting up a new “smart and intelligent database” to check tax evasion.

“The merit of levying MAT on capital gains will be decided by AP Shah Committee and the Supreme Court… I cannot anticipate what AP Shah panel will do. Shell and Vodafone case went against us and once we accepted that judgement, we told our officers please don’t do future assessments and please don’t further agitate these in appeals,” Anita Kapur, CBDT chairperson, told reporters here in a press conference.

The comments come as the government sets up the Shah panel to examine the matter relating to the levying of MAT on FIIs for the period prior to April 1, 2015, following the uproar on notices sent to FIIs for their alleged non-payment of capital gains tax on the profits made up to March 1, 2015. The income tax department has sent 68 notices involving tax worth Rs 602.83 crore.

“Assessing officers cannot redo their order (on levying of MAT on FIIs), but if order is in appeal, then we can certainly tell our assessing officer please don’t take it further, don’t agitate it in further…,” the chairperson said adding that the though the department is “certain on the process”, merit of the issue will be decided by the Supreme Court.
Asked what the government would do if the Shah panel and the Supreme Court give conflicting views, Kapur said, “We will cross the bridge when we come to it… The Commission has fixed a schedule for hearing out all the stakeholders, and let’s see how things proceed.”

Earlier, the government had assured over 1,000 FIIs across the US, Hong Kong and Singapore that they can avail of treaty benefits to ward off the tax demands on the capital gains made by them over the years till March 31.

Further, pointing out that the menace of tax evasion was “spoiling” the culture of compliance in the country, she said that the income tax department will ensure that chronic evaders are not able to get away without facing court cases.

“We try to ensure that our tax regime remains non-intrusive…. but there are certain people or cases against whom intrusive action is required because not everybody is willingly compliant. We have the powers of search and seizure under the I-T Act…we all know that there is large tax evasion happening in certain cases and we have to use that power of search and seizure,” she said.

She further added that “demonstrative action” by the taxman is required against evaders. “Our focus should not be collection and it should be taken to a logical conclusion which is that an evader not only pays penalty (on the tax evaded) but also be prosecuted,” Kapur said.

As such, in order to tackle the menace of tax evasion, the department is working on developing a new database to improve data mining, including all financial transactions of individuals and entities. The database — Income Tax Business Application — will be set up later this year and will be fully operational by next year.