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Investigation of tax evasion by WSP India in progress: IT Dept tells HC

Feb 11, 2024 

WSP Consultants India, a professional services firm, offers technical and strategic advisory services in various engineering and infrastructure sectors 

The Income Tax Department (I-T dept) recently informed the Delhi High Court (Delhi HC) that the investigation into tax evasion by WSP Consultants India Private Limited is ongoing and will be concluded logically.

This was on a plea filed by Jyoti Sawroop Arora, a former employee of WSP India, whose parent company is based in Canada. He joined as Senior Manager Finance cum Company Secretary in March 2012 and was later promoted to Head Legal and Company Secretary in April 2013, as stated in his petition.

“Today, learned counsel for respondent 1 & 2 (Principal Chief Commissioner of Income Tax, Income Tax Department and Others), on instructions, states that investigation in the Tax Evasion Petition filed by Mr Jyoti Sawroop Arora against the WSP Consultants India Pvt Ltd is in progress and pending. He assures this Court that the said investigation shall be carried to its logical conclusion,” said a bench of Acting Chief Justice Manmohan and Justice Manmeet Pritam Singh Arora.

Jyoti Arora sought directions to initiate proceedings against the firm (and any related party) under the Income Tax Act, 1961, to establish their fixed place Permanent Establishment in India, based on the Supreme Court's decision and the Act's provisions.

WSP Consultants India, a professional services firm, offers technical and strategic advisory services in various engineering and infrastructure sectors.

Arora claimed the firm and its affiliates are liable to pay income tax at 40 per cent on profits attributed to their fixed place Permanent Establishment in India, as opposed to WSP India's 30 per cent. He added that Goods and Services Tax (GST) is also levied at 18 per cent on the turnover of WSP's fixed place Permanent Establishment in India.

"Both these levies would have brought additional foreign exchange of tens of millions of dollars into the country but for the failure of Respondent 1 & 2(I-T Department) to consider and assess Respondent Nos. 6-9(WSP) as fixed place PE in India, despite having been notified thrice by the Petitioner(Arora)," the petition stated.

The court admitted the plea as a public interest litigation (PIL).

“By the order dated May 23, 2023, we had sought a report from the Registry, as to whether the above-captioned matter should have been listed before Division Bench-I, as it has some ingredients which are suggestive of the fact that it is an action in the nature of public interest. The Registry has examined the same, and via report dated July 20,.2023, it has opined that there exists an “element of public interest” in the matter, as evasion of tax is involved. We tend to agree with the view of the Registry. Accordingly, list the matter before Division Bench-I on August 17, 2023, subject to orders of the Hon’ble Chief Justice,” Justices Rajiv Shakdher and Girish Kathpalia said.

Arora, in his petition, claimed he is a 'statutory whistleblower', obliged by law to report any company misconduct. He informed the Income Tax Department about WSP UK Limited, WSP Middle East, WSP Sweden, and WSP USA Limited's failure to meet statutory assessments, despite three notifications, leading to significant national losses and necessitating urgent court intervention.

Arora reported potential income tax evasion by WSP entities in India through five emails sent under the Whistleblower mechanism from September 2018 to January 2019. Despite assurances of protection against retaliation in the company's code of conduct, he was dismissed on June 11, 2019.

He also alleged that WSP India continued evading income tax in the financial year 2021-22 by misrepresenting transactions with related parties as arm's length.

“To cloak the real nature of transactions between WSP India and the Associated Enterprises / Related parties, and to hoodwink the Indian authorities, a unique mechanism has been devised to cause loss to the revenue and get away with other statutory compliances a Service Agreement was crafted and created pursuant to which WSP India used to raise its invoices (generally on a monthly basis) seeking reimbursement of expenses done by it for and on behalf of the associated enterprises/related parties which used to fall under two heads – employee cost and fixed desk charges,” the petition said.

The plea also said that that ‘as per the audited balance sheets of WSP India for the FY 2017-18, there is an admitted turnover of Rs.148.16 crores which in the respectful submissions of the present petitioner, considering the real understanding between the parties and the disclosure of the arm’s length pricing based on the alleged service agreement, appears to be highly disguised and manipulated and considering the fact that the same is only in the nature of reimbursements from the Associated Enterprises, shall require the Associated Enterprises to avail not only registrations in India but also to comply with all requirements including payment of the VAT/GST, interests, penalties etc. Similar would be the position for all the financial years for which the PE of each of the Respondent Nos 6-9 is established.’

Business Standard contacted WSP entities but did not receive a response.

[The Business Standard]

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