Siddhartha saga: Property attachment is by no means tax terrorism

Siddhartha saga: Property attachment is by no means tax terrorism

S Murlidharan

In his yet-to-be authenticated letter to his staff, which many call his dying declaration, V G Siddhartha, the founder of Café Coffee Day (CCD), says among other things that he was constantly being pressured by a private equity player to buy back shares; and that he was hamstrung by the provisional attachment of his in shares of CCD.

Critics of the Narendra Modi government have latched on to the second with alacrity to crucify it with the choicest epithets — return of the inspector raj, tax terrorism, and the like.

The income tax department did well to disabuse this notion, which would have otherwise got a groundswell of support, coming as it did from a person who is no more. It said the shares were attached to protect revenue interest as Siddhartha had paid a paltry Rs 46 crore as tax on capital gains from sale of Mindtree shares to L&T when as much as Rs 300 crore was payable by way of minimum alternate tax (MAT).

Provisional attachment is permissible under I-T law to safeguard revenue interest.  Indeed, most  fiscal laws contain a provision to this effect.  The Enforcement Directorate, too, routinely attaches properties of fugitives and suspected fugitives. Indeed, the Fugitive Economic Offences law passed by the Modi government in 2018 is all about confiscation of properties both in India and abroad of such fugitives. Attachment comes pretty close to confiscation.

Siddhartha might have been hamstrung by the attachment, but it is a moot question if the government should have sat tight helplessly even as it was short-changed. He is also wrong is saying that the attachments were made despite revised return on income having been filed.  Revised return can be filed only to correct genuine mistakes, not in a manner of double take when caught.

In any case, the investigating authorities have to find out if the private equity firm snapping at Siddhartha’s heels held out any bodily threat to him or his family. The courts should also take a stern view of threats or blackmailing tactics, if any, by a former DG of income tax – as alluded to in the same letter.

The income tax department itself cannot be pulled up much less proceeded against for doing its job –provisional attachment of properties of a defaulter or a suspected defaulter. About 84 percent of promoter holding in Coffee Day Enterprises — 45.33 percent equity in the company valued at Rs 1,475.17 crore — is still pledged with lenders, according to exchange filings.  This revelation is significant because it shows the deceased had borrowed to the hilt and was facing the heat of private equity player and possible censure from some of the big investors in CCD shares.

Sure, it is possible that Siddhartha was caught in the cross-fire of political slugfest between the Congress-JDS combine and the BJP in Karnataka. It turns out that the I-T department got a whiff of Siddhartha’s alleged wrong-doing when it stumbled upon his links with Shivkumar, the Congress MLA, during raids on his premises.

But then, it is a common consequence of income tax raids that people who had transactions with tax evaders are also investigated.

People both in the media and in the commentariat taking up cudgels for the deceased aver:

    1. That he created a vibrant brand Indian brand name,  halted Starbucks in its tracks and created about 30,000 jobs. Should the one such as him be hounded?

    1. He did not slink away from the country like Vijay Mallya, Nirav Modi, Mehul Choksi and a few others.  He also chose to make India is karmabhoomi unlike many high net worth individuals who have made the US and a few salubrious European countries their home. Should such a person be hounded?

The answer to both the questions is first, he has not been hounded at least by the government and its agencies. Second, while brand and job creation are great by themselves, they do not beget any quid pro quo in the form of a right to a compensatory reprieve from legal compliance. Third, he could not have been indulged by the income tax authorities just because he has stayed put in India. Let us not once again make a virtue of a necessity.