THE Income Tax Department recently stated that it would wait till Sep 07, 2018 for settlement of TDS liability by Walmart on payments made to about forty four shareholders of E-commerce firm Flipkart, before proceeding in the case. The Department has also been reviewing Section 9 (1) of the I-T Act, which deals with indirect transfer provisions, to see if the benefits under the bilateral tax treaties with countries like Singapore and Mauritius, could be available for foreign investors selling stakes to Walmart.

The US-based retail giant Walmart Inc had completed acquisition of 77% stake in Flipkart for about USD 16 billion deal in mid-August, and it has to deduct TDS on payments made to sellers and deposit it with the Indian authorities on the seventh day of the subsequent month, which falls on September 7. Walmart has not yet approached the Department to ascertain the withholding tax liability. Section 197 of the Income Tax Act provides that seller of shares can obtain withholding tax certificate from the Department after providing details of the transaction and make a case for availing lower or nil tax rates. The tax rate could be lower in case the non-resident seller invokes provision of the DTAA.

Once the withholding tax is paid, the Department would scrutinise whether Walmart has deposited the taxes correctly as per the assessment, on the basis of the share purchase agreement shared with it by Bengaluru-based Flipkart. However, if the Walmart fails to deposit the correct amount of taxes, then the Department will write to Walmart asking for details of taxes deducted and the reasons for failing to deposit the required amount. Rakesh Nangia, the Managing Partner of Nangia Advisors LLP quoted that, if Walmart is liable to withhold tax, non-withholding of appropriate taxes would entail implications u/s 201 of Income Tax Act and Walmart shall be construed as an 'assessee in default' liable to pay interest & penalty for failure to withhold and deposit to the credit of the government the appropriate taxes.

The question then arises as to what could be the possible reason behind Walmart's strategy of not approaching Income-tax authorities to obtain lower/nil withholding order u/s 197? Though order u/s 197 acts as a provisional assessment of the transaction between Walmart and shareholders of Flipkart, it is not an appealable order. Walmart had in July assured the Department that it would fulfil all tax obligations. Flipkart had in May shared share purchase agreement with tax authorities, based on which the Department has assessed the tax rate that would be applicable for investors in Flipkart who are selling the shares to Walmart.