Angel Tax leaves start-up TravelKhana with zero bank balance: report

11 Feb 2019


Failure to cough up Rs2.30 crore on investment funds received from angel investors has cost start-up TravelKhana dear as the Central Board of Direct Taxes (CBDT) froze the company’s four accounts and withdrew the entire sum of Rs33 lakh from them, say a report in the Quint.

The CBDT on 21 December slapped a Rs2.30 crore tax demand on TravelKhana, the Noida-based start-up that pioneered food deliveries to train passengers, but the company with a just Rs33 lakh account balance failed to pay up in time.
After desperate pleas by company founder Pushpinder Singh, CBDT un-froze the accounts but has left them penniless. Stung by this unprecedented behaviour, Singh is now questioning the company’s survival. “The question is really of our existence right now,” the Quint quoted Singh as saying on Thursday.
TravelKhana, an award-winning start-up, riding high on profits and bullish on expansion till last December, is now wondering whether it will exist in the next six months as the tax authorities have left the accounts of the company dry, says the report. 
Singh’s efforts to restore its bank accounts have failed so far and the tax authorities are in no mood to help and have so far only offered empty promises.
“We went to the income tax officers, to the assistant commissioner of income tax who is the assessment officer. We went to his senior and eventually to the principal commissioner of income tax. No one gave us any assurance. All that they said was a standard government reply,” the report quoted Singh as saying
‘How do I run a company with Rs0?’ Singh also said the tax officials had been posing many questions about the capital he had raised in the financial year 2015-16. He was slapped with an angel tax order on 21 December 2018 and was also asked to comply with the tax queries. The charges were framed under section 68 of the Income Tax Act, which deals with unaccounted cash credits.
Singh had on 4 February sought more time for payment, only to find all four accounts of his company frozen by the CBDT the very next day.
Senior tax officials have later acknowledged it was “an error on their part and against natural justice,” but offered no remedy than unfreezing TravelKhana’s accounts.
CBDT is reported to have withdrawn the Rs33 lakh from the company’s account as tax liability on investments raised by the company from angel investors. 
“CBDT accepted that this was an error, this was against the principles of natural justice and they got the accounts unfrozen. So, the accounts are now unfrozen but how do we really run the business with zero money in the accounts?” 
According to Singh, the tax assessment officials did not care to look at the company as a start-up, but instead acted on the assumption that they are dealing with tax dodgers and criminals who are into money laundering.
CBDT’s action also comes 20 days after a group of 70 start-ups from across India submitted an appeal to Prime Minister Narendra Modi imploring him to do away with the arbitrary tax.
Subsequently, commerce minister Suresh Prabhu issued a notification announcing changes to section 56 (2) (vii b) of the Income tax Act, which imposes the ‘angel tax’. 
However, the treatment of start-ups continues to be same and tax authorities continue to go by the provisions of the Act. 

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