Scrutiny of firms trading in penny stocks

Also, ahead of inter-ministerial meeting on Cairn notice, revenue secy says arbitration not the best way to resolve tax disputes

A day after the Securities and Exchange Board of India barred 59 entities for fictitious trades in illiquid stock options, with the aim of avoiding taxes, Revenue Secretary Shaktikanta Das said his department was also in the process of taking action against certain companies trading in penny stocks to avoid capital gains tax.  

On the separate issue of tax disputes between the government and some major companies, especially multinationals such as Vodafone and Cairn, he said the arbitration route was not the best way of settling such matters.

The better option, he said, was  something on the lines of the mutual agreement procedure (MAP) with American companies; he said he expected to see disputes with some 120 US  companies getting resolved over the next three-odd months through this method. An inter-ministerial panel meeting to decide the government's stand on the arbitration notice served by  Cairn Energy is slated for next week.


 

The government has decided to join the arbitration initiated by Vodafone on a Rs 20,000-crore tax demand. However, it has so far resisted joining similar moves by Cairn and Nokia. It had last month appointed Costa Rica-based lawyer Rodrigo Oreamuno to mediate on its behalf in the dispute with Vodafone.

As mentioned earlier, Das said this was not the best way to settle disputes. “It is better that the two governments concerned sit together and settle it like MAP, instead of a third party settling it.” Using the India-UK investment protection treaty, Cairn has named former Bulgarian minister and lawyer Stanimir Alexandrov its choice as arbitrator and asked the government to appoint its own on a three-member panel to go into the Rs 10,247-crore retrospective tax demand. The income tax department says Cairn made a capital gain of Rs 24,503 crore in 2006 when it transferred all its India assets to a new company, Cairn India, before listing on the stock exchanges.

Cairn Energy, which in 2011 sold a majority stake in its Indian unit to mining group Vedanta for $8.67 billion, still holds 9.8 per cent in Cairn India. Last January, the income tax department had barred it from selling this stake. Das said the government had initiated various measures to resolve tax disputes. “ Our focus is to resolve as much of problems as possible in matters of international taxation through MAP and APA (Advance Price Agreements),” he said.

Das said a couple of APAs signed with Japanese companies have gone down well with the latter. The secretary also said the government was prepared to implement its agreement with the US government to enforce that country's Foreign Account Tax Compliance Act from September, as well as automatic exchange of information from 2017.

He hoped a meeting of finance ministers of G-20 countries in October would accept India's position that there should be source-based taxation. India's contention is that tax should be levied on companies where their activities are.

Separately, he attributed selling pressure in Indian stock markets to a multiplicity of factors, mostly external. "Global markets are in turmoil. Companies across the globe are not doing well," he said.

Amid global gloom, he said India presented a far better picture. "There are only a limited number of bright spots in the global arena and India is certainly in the forefront."

The BSE's benchmark Sensex was down 391.14 points at 27,215.58 on Friday afternoon.