Recovery of tax in pursuance of agreements with foreign countries

418(1)

Where an agreement is entered into by the Central Government with the Government of any country outside India for recovery of income-tax under this Act and the corresponding law in force in that country and the Government of that country or any authority under that Government which is specified in this behalf in such agreement sends to the Board a certificate for the recovery of any tax due under such corresponding law from—

• (a) a resident; or
• (b) a person having any property in India, the Board may forward such certificate to any Tax Recovery Officer having jurisdiction over the resident, or within whose jurisdiction such property is situated and thereupon such Tax Recovery Officer shall— (i) proceed to recover the amount specified in the certificate in the manner in which he would proceed to recover the amount specified in a certificate drawn up by him under section 413; and (ii) remit any sum so recovered by him to the Board after deducting his expenses in connection with the recovery proceedings.

418(2)

Where an assessee is in default or is deemed to be in default in making a payment of tax, the Tax Recovery Officer may,—

• (a) if the assessee is a resident of a country being a country with which the Central Government has entered into an agreement for the recovery of income-tax under this Act and the corresponding law in force in that country; or
• (b) has any property in that country, forward to the Board a certificate drawn up by him under section 413 and the Board may take such action thereon as it may deem appropriate having regard to the terms of the agreement with such country.

Explanation

Section Summary:

This section outlines the process for recovering income tax in India when there is an agreement between the Indian government and a foreign country for mutual assistance in tax recovery. It allows the Indian tax authorities to recover taxes owed by residents or individuals with property in India, based on a certificate received from a foreign government. Conversely, it also enables Indian authorities to request tax recovery from foreign countries if an Indian taxpayer has assets or is a resident in that country.

Key Changes:

1. International Tax Recovery Agreements: The section formalizes the process for cross-border tax recovery under mutual agreements, which was not explicitly detailed in the prior income tax law.
2. Reciprocal Enforcement: It introduces a mechanism for reciprocal enforcement of tax recovery between India and foreign countries, ensuring compliance with international agreements.

Practical Implications:

1. For Taxpayers:
   • Residents or individuals with property in India may face tax recovery proceedings initiated by foreign governments through Indian tax authorities.
   • Indian taxpayers with assets or residency in foreign countries may be subject to tax recovery actions in those countries if they default on Indian tax payments.
2. For Tax Authorities:
   • The Board (CBDT) and Tax Recovery Officers gain explicit authority to act on foreign tax recovery requests and initiate recovery proceedings in India.
   • Indian authorities can also request foreign governments to recover taxes from Indian taxpayers with assets abroad.

Critical Concepts:

1. Certificate for Recovery: A formal document issued by a foreign government or its authorized authority, specifying the tax amount due under their laws.
2. Tax Recovery Officer (TRO): An officer authorized to recover taxes in India, including those specified in foreign recovery certificates.
3. Section 413: Refers to the process of drawing up a certificate for tax recovery in India, which is applied similarly to foreign recovery requests.

Compliance Steps:

1. For Foreign Governments:
   • Send a recovery certificate to the Indian Board (CBDT) for tax recovery from residents or individuals with property in India.
2. For Indian Tax Authorities:
   • Forward the foreign recovery certificate to the relevant Tax Recovery Officer (TRO).
   • The TRO will recover the tax amount as per Indian recovery procedures and remit the recovered amount to the Board after deducting expenses.
3. For Indian Taxpayers with Foreign Assets:
   • Ensure compliance with Indian tax laws to avoid recovery actions initiated in foreign countries.

Examples:

1. Scenario 1: A resident of India owes taxes in Country X under their tax laws. Country X sends a recovery certificate to the Indian Board. The Board forwards it to the TRO, who recovers the tax from the resident’s assets in India.
2. Scenario 2: An Indian taxpayer defaults on Indian tax payments but owns property in Country Y. The Indian TRO sends a recovery certificate to the Board, which requests Country Y to recover the tax from the taxpayer’s property there.

This section facilitates international cooperation in tax recovery, ensuring compliance across borders while protecting the interests of both Indian and foreign tax authorities.