CAG wants I-T dept to scan cos cutting TDS

NEW DELHI: Oracle, Ericsson AB, Star Television, Reliance Industries, Reliance Infocomm and Gujarat State Petroleum among others paid less than the amount due in taxes according to the Comptroller and Auditor General. CAG has claimed that the companies’ failure to pay the right amount of taxes were overlooked by the I-T department. This has led to loss of revenue for the exchequer. In some of these cases the CAG’s comments have been challenged by the I-T department. In other cases it has agreed to pursue the demand.

The CAG has asked the department to tighten its administration and bring what it calls tax deductors into tax net.“The finance ministry may take necessary steps to bring in all tax deductors into the tax net and enforce recovery of tax deducted at source and tax collected at source as required under the Act,” the CAG said in its report for 2005-06.

Tax deducted at source or withholding tax in case of transactions involving non-residents, gives the government a whole or part of the tax on taxable income earned by a taxpayer even before the relevant income reaches him. For example, all companies deduct tax from salaries paid to their employees, depending on their tax liability, even before the salary reaches the employee.

Tightening of the TDS administration is important as it forms a large chunk of the government’s total tax collections. In 2005-06, the year audited by CAG, it comprised 33% of total direct tax collections. The report says that in case of Ericsson AB, in 2002-03, the company was taxed at a lower rate of 10% instead of 30% on payment of royalty and technical fee. With the result the public exchequer was deprived of taxes to the tune of Rs 42.72 crore.

Similarly in case of Oracle Corporation, the tax rate applied in 2002-03 was 15% instead of 20% resulting in a loss of Rs 5.23 crore. The government auditor in both the cases has held income-tax reply defending the decisions of its officers as untenable, the report pointed.

Star Television was found to have to not paid tax on advertisement revenue. The tax liability of Rs 35.82 crore which was brought to the fore by CAG, is now being pursued by the tax department. Reliance Industries in 2002-03 and Reliance Infocomm in 2002-03 and 2003-04 did not deduct tax of Rs 2.87 crore and Rs 1.99 crore at source on payments made to non-residents based in US, the report pointed out. Similarly, Gujarat State Petroleum also did not deduct tax on remittances to non-resident individuals and companies resulted in a lower deduction of tax of Rs 3.28 crore. The income tax department, however has agreed to take remedial action in this case.