While settling claims, the government and Indian lenders to the Dabhol power project overlooked the capital gains tax which had to be paid by GE, Bechtel and foreign lenders.
Tax dues run into a few hundred crore rupees. This means that tax officials and the Indian lenders, which have taken over the assets of the erstwhile Dabhol Power Company and transferred them to New Age Power Company, have spent the last few days working out the liability.
Since the dues of foreign shareholders and lenders have been cleared and Dabhol Power Company no longer exists, it is the buyer of the plant, Ratnagiri Gas and Power Private Ltd, which will have to bear the cost of the short-term capital gains tax on the plant.
The company is the special purpose vehicle set up for reviving the plant. National Thermal Power Corporation, Gail India Ltd and the Indian lenders, which hold equity in the RGPPL, will then be liable to pay the tax.
As per Section 50 of the Income Tax Act, short-term capital gains tax is to be paid by the seller of an asset if the seller has availed of depreciation benefits.
However, Section 46 of the Act stipulates that in case the selling company is liquidated, the dues are to be recovered through sale of assets.
The final figures are still being thrashed out by the finance ministry and Rothschild and SBI Caps, which are advising on the resumption of the facility in Maharashtra.
"Had the issue been considered then, the final settlement amounts would have been lower," said an official.
Another view is that there will be no liability on account of capital gains as the stakeholders have taken a hit on the principal and the interest.
With the settlement done, the way is now clear for the Debt Recovery Tribunal process that will facilitate sale of assets to Ratnagiri Gas and Power.
The project SPV, consisting of NTPC and Gail, will work on restarting the plant, shut since 2001. The government has set a target of restarting the plant by 2006.
