Claims govt. should benefit more from evaded tax

Judiciary: The legal battle over the distribution of profits among four founders of Mega Private Ltd continues as one of the appellants decided to appeal to the Supreme Court.

“My client has decided to appeal as the High Court denied 25 percent of his share which he is entitled for,” plaintiff Kunley Wangdi’s legal counsel, Cheda, said.

The other ground for appeal, according to Cheda, was that government should get more taxes, that was evaded, than the High Court (HC) had estimated, about Nu 94M, excluding company’s net liquidation proceeds of Nu 15.78M. The founder and the first managing director of the company, Kunley Wangdi, claimed that four partners were supposed to get their profit shares of Nu 438.36M each.

Mega Pvt Ltd’s profit and loss account for the year 2006 and 2007 that was submitted to the regional revenue and customs office in Phuentsholing for filing of tax return by managing director Namgay Nidup on May 3, 2008 revealed that the company made a net profit of Nu 696.88M.

Kunley Wangdi claimed that out of audited profit for 2006 and 2007, Nu 154.4M was generated from software development, Nu 696.88M from vanaspati and Nu 25.45M from dollar fluctuation. However, he alleged that his three partners, Namgay Nidup, Tandin Dorji and Ugyen Samdrup who are defendants, reflected this as bogus or notional income to evade tax and drained out the profit to form at least three companies and acquired many properties from the profit and business of Mega Pvt Ltd.

He also claimed that the company made an income of Nu 192.62M in 2008 by importing crude palm oil and exporting to India from January 1 to September 14.  However, the defendants declared that the company suffered loss due to lifting of 85 percent import duty of crude palm oil in India.

In order to authenticate imports of 2008, the appellant submitted before the trial court to acquire import details of 2008, but the department of revenue and customs refused to provide any information. Kunley Wangdi then obtained information from Jaigaon Land Customs station, Jalpaiguri, where the import details of goods transported to Bhutan are kept. The same was submitted before the court as additional exhibit.

The import details from January to September 2008, according to Kunley Wangdi, proves beyond the preponderance of evidence that there was no loss from the business of 2008.

The appellant is also dissatisfied with the HC’s ruling, which dismissed notional income of software export business and assessed only for the actual income generated from vanaspati business. The court ruled that software business had never existed and actual income was accounted based on the financial audited carried out by statutory audit.

Challenging the defendants’ submission to the court that they spent Nu150.40M for the  software development, Kunley Wangdi said that they failed to justify and submit evidence for the expenses charged for development of software.

“In case the defendants claim the software business to be bogus, they should show where they have taken the money claimed to have spent on the software development and dollar fluctuations,” legal counsel Cheda said. “In the event the defendants fail to provide any evidence and proof, the amount reflected against software should be declared as profit and they should be penalised.”

The defendants said that an income of Nu 212.90M had been recorded under the software unit when Kunley Wangdi managed the company in 2006. “Supposing this to be not bogus but a real income, the plaintiff will then be under the obligation to share this profit to the other three defendants,” legal counsel Younten Dorji said. “But it is a  fact that the income reflected under the software unit was bogus known to all partners and they didn’t make claim from such income, though reflected in the balance sheet,” he submitted.

Likewise, according to the defendants, Kunley Wangdi also cannot claim any profit reflected therein the balance sheet if the income reflected under the software unit in the subsequent years was bogus and invisible. They said that the trial court had gravely erred in not segregating the bogus income from the consolidated profit and loss account.

Thimphu district court on November 29, 2013 ruled that Kunley Wangdi, being the partner of the company with 25 percent of share, is eligible for profit amount of Nu 182.37M with applicable interest. However, the HC overturned the judgment.

Meanwhile, defendants’ legal counsel, Younten Dorji, said that he is still reviewing the High Court’s ruling and was not in a position to comment.

By Rinzin Wangchuk