Tax office raids law firms in Express Towers Mumbai

Wednesday, 5 August 2009 By Kian Ganz Law firms

The Income Tax Department raided the Mumbai offices of ALMT Legal and AZB & Partners late last week looking for information related to clients and offshore transactions. The raids were not related to either of the law firms’ own tax positions.

Up to around five staff from the Income Tax Department of India entered AZB and ALMT offices unannounced on Thursday and Friday respectively.

It is understood that the team remained at each firm for several hours, requesting information on clients, particularly in respect of offshore tax structures.

It is understood that the law firms cooperated with the Income Tax Department’s requests where possible.

A source said: “They were very cordial and they got it over very professionally.”

A direct tax expert with one of the Big Four accountancy firms told Legally India: “I have not really heard of law firms getting raided in the past – I would not say it’s a routine event.”

He speculated that the tax authorities have become far more aggressive after challenging the Cayman Islands offshore structure in Vodafone’s acquisition of Hutchison Essar, which landed Vodafone with a $2bn capital gains tax bill.

“They are now looking at other similar transactions so they could hold the buyer responsible for income tax.”

The accountant explained that generally one would have to comply with the tax office’s directions: “They have the powers and they can issue summons asking for a particular person to appear before them in relation to a particular case and they have wide powers to search and survey.

“Of course one may be able to litigate and defend but it depends on what authority they carry and what kind of information they have.”

ALMT and AZB declined to comment.

Comments

Guest 5 Aug 2009, 10:23

+0 -0

Would advocate client confidentiality and resulting privilege not bar authorities from conducting raids on law firm's premises? What is the position of law on this?

Vinay 5 Aug 2009, 10:44

I agree that the department is now aggressively pursuing all kinds of offshore structures and investors will now need to be much more careful before finalising the structures wrt their M&A transactions.

Manu 5 Aug 2009, 11:17

1 - I don't know the legal position on this either but I think the tax authorities are overstepping their mark. The way they operate is generally unconscionable and needs to be changed.

I am not Kian Ganz 5 Aug 2009, 11:33

Yes, what is the position of law on this? But I am sure that it leans and should lean in favour of the Tax Authorities.

Legal Dodo 5 Aug 2009, 12:03

The three "R's" of the Income Tax Department - "This is ours, that is ours, everything is ours."

bemused 5 Aug 2009, 12:34

Nothing new, this has happened before. [edited] disclosing anything re clients is against professional privilege except ofcourse the clients gave their green signal..

Vinay 5 Aug 2009, 13:16

The legal position is not at all clear. After Vodafone we now have the E*Trade case where E*Trade Mauritius was held to be a façade/ shell company based on the fact that E*Trade Mauritius had acquired its funds from E*Trade, USA, its parent company and, as such, it was held by the dept that it could not avail of the tax treaty benefits. This runs counter to the Supreme Court's ruling in the Azadi Bachao case, but it could be said that a fine distinction might have been drawn by distinguishing between Ownership/Beneficial Ownership of the shares and the test of Residency. The matter is not final but for all practical purposes it would be difficult for tax payers to plan in an uncertain environment created by the above decisions although the Authority for Advance Ruling could still be approached.

Glorified Clerk 6 Aug 2009, 06:27

Can a good lawyer please analyse Section 126 of the Indian Evidence Act and tell the implications of this situation/

Guest 6 Aug 2009, 09:00

Section 126 of the Indian Evidence Act is quite clear on the point that professional communication between a lawyer and the client is not privileged if the same is made in furtherance of any illegal purpose or if fact pertaining to the commission of any fraud or crime subsequent to the engagement of the lawyer comes to the knowledge of the lawyer. Therefore, the law firms concerned would not be at any fault if any communication/information in respect of any fraud/illegality is disclosed to the tax authorities.

Anonymous 6 Aug 2009, 09:08

Adding to Anonymous at 9 - therefore there cannot be any bar on the tax authorities as well to carry out the raids reported in the article above.

Anon 6 Aug 2009, 12:47

to 9 and 10: Tax avoidance is not "illeal or fraud". Only tax evasion is illegal. So if you do come up wiht a structure which intends to avoid tax how is it illegal. I think that the authorities overstepped their position and legal privilege should apply.

Glorified Clerk 7 Aug 2009, 06:07

I agree. It will be like a criminal court or police interrogating accused's lawyer and using the statement as evidence!

Hitesh Sanghvi 7 Aug 2009, 19:00

Broadly, it is also possible that such an incident of raid may have occurred because the office address of the law firm that has been instructed has been used as the 'registered office' address of the company/entity, which is not uncommon.

In other words, it is possible that the tax authorities 'rather' visited the 'registered office' of the company/entity for
investigation purposes which happened to be the office address of the law firm that it uses.

Rajesh Kumar 25 Sept 2009, 09:45

The communication between advocate and his client is a priviledge communication. It cannot be demanded even in the court of law. The act of Income Tax authorities in this respect is illegal and without understanding the legal provisions. If any such information is asked from an advocate, it should be refused by the advocate.
I think Bar Council should raise the issue with government or issue should be raised in court of law through writ petition.

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