The government which is firefighting the fallout of the 2G spectrum scam is now confronted with the ghost of the over-two-decades-old Bofors scandal revisiting it. In an order issued last week, the Delhi bench of Income Tax Appellate Tribunal (ITAT) said that commissions were paid to late Win Chaddha, an agent of the Swedish arms manufacturer AB Bofors and Italian businessman Ottavio Quattrocchi in the Howitzer gun deal. The tribunal also said that Win Chaddha is liable to pay tax in India on the income. AB Bofors should have deducted the tax at source.

?The investigations revealed that an amount of SEK 242.62 million was paid by AB Bofors, as commission, to Quattrocchi and WN Chadha through M/s AE Services and M/s Svenska, in contravention of the policy of the government of India not to allow middlemen/agents in the deal,? the tribunal said.

This runs counter to the stand taken by the country?s prime investigating agency CBI that there was no proof of any kickback in relation to the deal. Allegations of kickbacks in the 1987 deal kicked up a political storm, leading to the defeat of late prime minister Rajiv Gandhi in the subsequent Lok Sabha elections.

Seizing the opportunity, the BJP on Monday demanded reopening of the criminal investigation into the Bofors case by a Special Investigative Team (SIT). ?A strange situation has been created by this order. On the one hand, you have the CBI which had closed the case and now you have the revenue wing of the same government taking a view that kickbacks were paid,? said leader of the opposition in the Rajya Sabha, Arun Jaitley.

Congress spokesperson Abhishek Manu Singhvi said that the party had not had an opportunity to look at the 140-page order and would react only after that.

?Let us have a look at the order first,? he said.

In its order, the tribunal further said it was surprised to observe that though the (tax) department had proceeded against the assessee (Chadha), it apparently took no action against either him or Ottavio Quattrocci or other related entities.

The tribunal said that in its view, the tax department should have carefully examined the issues about Chadha’s taxability and his having PE in India. ?Appropriate proceedings should have been undertaken to assess and recover taxes,? it said. ?We may point out there exists a serious issue apropos Bofors for not having deducted withholding tax (TDS), from such payments to the Assessee/Svenska, Associated Enterprise Services and Quottrocci,? the tribunal said. ?Inaction in this regard may lead to a non-existent undesirable and detrimental notion that India is a soft state and one can meddle with its tax laws with impunity,? it added.

The tribunal also pointed out that in the Bofors supply case the fundamental contract was executed in India between Bofors and the defense department and the payments were also made from India for the services that were to be rendered in India. “All the incidental payments would have an Indian connection. Therefore, the Indian tax jurisdiction is squarely invoked,” it said.

The tribunal also sought to draw a parallel to this case with the Vodafone case, where the government is battling out with the British telecom major for the taxes the latter was liable to pay in India consequent to its acquisition of Hutchison Essar.

In the Vodafone case, a foreign entity acquired shares for controlling the interest of an Indian company, from another foreign entity, through a contract executed in India and the consideration of transfer also paid and received in India; so, Indian tax authorities have the jurisdiction on the deal for capital gains tax.

The four bidders for the Bofors gun deal that took place in 1987 involved Sofma from France, Bofors of Sweden, International Military Services(Britain) and Voest Alpine (Germany).

Pointing out that Chadha was an agent for Bofors, the tribunal said that among the requisite information that was furnished by the bidders about their agents in India, Bofors in its declaration had informed that W N Chadha of Anatronic General Corporation, was their agent and that Hersh W Chadha, the Marketing Director of Anatronic, Brig. B B Bhatnagar (retd) and Brig. A L Verma (retd) were designated to liaise with the Indian government the Indian authorities for the contract.

Sources in the BJP, in fact, said that they were pleasantly surprised at the turn of events. ?This was perhaps an unintended consequence of a routine tax case,? said a senior leader. ?On its own, the ITAT findings would not have had a deep impact but coming as it does in the season of scam it will have a cumulative effect,? he added.