BBC accused of unpaid taxes on remittances, disproportionate profits; employees accused of dilatory tactics.
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AFTER the conclusion of a three-day ‘survey’ of the offices of British Broadcasting Corporation (BBC) by the Income Tax Department in Delhi and Mumbai, a press release was issued by the Union Ministry of Finance on Friday justifying the exercise and revealing its findings. It states that the department found profits disproportionate to the BBC’s scale of operations in India and unpaid taxes on certain remittances. It also claims that “crucial evidence” was unearthed by way of statements of employees, while also accusing them of employing “dilatory tactics”.
The press release does not mention the BBC by name, describing it only as a “prominent international Media Company”.
Crucial evidence
“Crucial evidence” was unearthed by way of statements of employees, digital evidence and documents which are yet to be examined further, the press release claims, clarifying that “only those employees were recorded whose role was crucial including those connected to, primarily, finance, content development and other production related functions.”
However, despite the ministry’s claim that “crucial evidence” was collected, the employees of the BBC have been accused of employing “dilatory tactics … in the context of producing documents/agreements sought”.
It is relevant to note here that no person can be examined on oath under Section 133A of the Income-tax Act, 1961, under which the ‘survey’ was conducted. The lack of this power deprives the tax authority from using any statement acquired during a ‘survey’ from being presented in court as evidence.
Since BBC employees were not under any legal obligation to have their statements obtained and later used as evidence to bolster the tax authority’s case, the ministry’s claim that they were employing “dilatory tactics” is puzzling.
Profits not commensurate
“Despite substantial consumption of content in various Indian languages,” the press release says, “the income/profits shown by various group entities of BBC is not commensurate with the scale of operations in India.”
The press release also claims that several pieces of evidence pertaining to the operation of the organisation were obtained during the ‘survey’ which allegedly indicate that tax has not been paid on certain remittances which have not been disclosed as income in India by BBC’s foreign entities.
Additionally, the note claims, the operation allegedly revealed that services of seconded employees have been utilised by BBC, for which reimbursement has been made by BBC’s Indian entity to the foreign entity concerned. “Such remittance was also liable to be subject to withholding tax, which has allegedly not been done.”
Further the survey has also allegedly thrown up several discrepancies and inconsistencies with regard to Transfer Pricing documentation. Such discrepancies relate to the level of relevant function, asset and risk (FAR) analysis, the incorrect use of comparables which are applicable to determine the correct arms length price (ALP), and inadequate revenue apportionment, among others.
Limits of a tax survey
As per Section 133A, an income tax authority must be afforded the necessary facility to inspect books of account and other documents, check stock or other valuable articles and furnish any information that may be useful or relevant to any proceeding under the Income-tax Act.
However, the powers of the Income Tax Department under the above provision are curtailed by several caveats contained in the Act.
No books of account or other documents can be impounded by an income tax authority without first recording reasons for doing so. In addition to this, the tax authority cannot retain in their custody any confiscated documents beyond a period of 15 days without obtaining the approval of higher tax authorities, such as the Principal Chief Commissioner or the Chief Commissioner or the Principal Director General of Income Tax.
As a further caveat, an income tax authority can “on no account” remove or cause to remove any cash, stock “or other valuable article or thing”.
However, searching through electronic devices by a tax authority may be in line with the provisions of the Information Technology Act, 2000. Section 7A of the Act allows the audit of documents, records and information maintained in electronic form where a provision for audit of documents (in physical form) exists under ‘any law’; such as it does under Section 133 of the Income-tax Act.
Therefore, even though a tax official may require an electronic device to be accessed and thereafter take copies of documents, they have not been provided the power to seize the device on which such a document is stored.
As noted above, no person can be examined on oath under section 133A, a power which the tax authority has under section 132 (pertaining to ‘search and seizure’ operations) of the Income-tax Act. The lack of this power implies that a statement acquired during a ‘survey’ cannot be presented in court as evidence, as held by the Kerala High Court in its judgment in Paul Mathews & Sons versus Commissioner of Income Tax (2003) and confirmed by the Madras High Court in Commissioner of Income Tax versus S. Khader Khan (2007).
