The central government is examining the taxation issues in the Walmart-Flipkart deal with regard to payments made by the US retailer to various shareholders to buy a majority stake in the domestic e-commerce company.

“We already have full details of all the payments made by Walmart to different investors. In some of the cases, taxes have been withheld. In many other cases, taxes have not been withheld, that's what we are examining right now. We have asked those investors to give us the details to show why they are not taxable,” Central Board of Direct Taxes (CBDT) member Akhilesh Ranjan said on the sidelines of a CII event on Tuesday.

US retailer Walmart has purchased a 77 per cent stake in Flipkart for about $16 billion (around Rs 1.05 lakh crore). Walmart has reportedly paid over Rs 7,439 crore in taxes to the government on payments made by it to the major shareholders of Flipkart.

As many as 44 shareholders of Flipkart, including SoftBank, Naspers, Accel Partners and eBay, sold their holdings to Walmart.

The existing income tax law requires the buyer to withhold tax while making payment to the sellers in case they are not exempted from levy of capital gains tax.

According to the provisions of the income tax law, Walmart has to deduct a withholding tax on payments made to sellers and deposit it with the Indian authorities on the seventh day of the subsequent month, which in this case was September 7.

Revenue officials had said the buy-out amount would be taxable based on the indirect transfer-related provisions under Section 9(1)(i) of the Income Tax Act brought in 2012.

This section states that income deemed to accrue or arise to non-residents directly or indirectly through the transfer of a capital asset situated in India is to be taxed in India with retrospective effect from April 1, 1962.

This retrospective amendment to the income tax act was brought about after the Supreme Court had, some years back, struck down a Bombay high court judgment that upheld a tax demand for $11.2 billion in the Vodafone-Hutchison deal.

Cairn Energy

The CBDT member said the revenue department has sold almost all of Cairn Energy Plc's attached shares to recover part of the Rs 10,247-crore retrospective tax demand. The CBDT had stated that “there is no legal advice against the sale of the attached shares”.

The tax department had in January 2014 used a two-year-old retrospective tax law to raise Rs 10,247-crore demand on the alleged capital gains made by Cairn Energy on a decade-old internal reorganisation of the Indian business.

This was followed by attaching the company's residual 9.8 per cent shares in its erstwhile subsidiary, Cairn India.