While the tax evasion pertains only to the CRS companies, Air India officials feel the tax authorities could hold them responsible. A note from the taxation section of the airline in May says there is a strong likelihood that the CRS companies may pass on this income tax liability on AI. It goes on to say the Income Tax department may also start recovery of taxes from the airlines, and may enquire as to why no tax was deducted in the past on the payments to the CRS companies.

The tax issue threatens to snow-ball in to a major controversy as the CRS companies have now asked the United Statesgovernment to intervene and take up the matter with the government of India. The CRS companies also point out that the entire work -- of processing reservations for AI and IA -- is being done overseas, and that their profits are therefore in the nature of export profits, and hence non-taxable.

The tax authorities, however, aren't buying this right now, and sent individual tax notices on Feburary 17 and March 29 to the CRS companies -- Galileo International, Amadeus Marketing S.A, Abacus Distribution System Private Limited, American Airlines, Incorporated and Sabre Group Inc. While all CRS companies are working with AI, only some are working with Indian Airlines. Till date the IT authorities have issued seven notices and have now started ex-parte proceedings.

Both IA and AI could be in more trouble, since they are also partners with Sabre Group Inc which has the largest tax assessment of a whopping Rs 126 crore against it.

And, what has set alarm bells ringing in the Air India building is the possibilitythat if the CRS firms continued to refuse to pay up the IT authorities would take punitive action against the airlines for recovery of the tax demand. Sources say that since the CRS companies do not have any bank accounts nor any intangible or tangible assets in India the tax authorities are likely to proceed against the two airlines since they are the ``representative assesses of the non-resident companies''.

IT sources say that AI and IA will held as ``assesses in default'' for not deducting tax at source on the payments credited to the CRS companies. Sources say that AI had signed ``participation agreements'' in 1989 with the CRS companies and is now getting these vetted by legal experts to get an opinion on whether AI is liable for tax or not. Despite, repeated attempts Arun Pawar, tax advisor for AI who is handling the matter refused to comment to The Indian Express.

The war within Air India

NEW DELHI: The possibility of AI having to fork out a huge tax liability has resulted in a bigslanging match between top officials, anxious to pin the blame on each other. On February 17, the airline's tax advisor Arun Pawar put up a note saying under the agreements made by AI with the CRS companies, it appeared the airline would have to pay the taxes. He asked the commercial director H.S. Uberoi to confirm who would be paying the taxes. Five days later, a caustic Uberoi wrote: ``I would have thought that this advise would be forthcoming from you as tax advisor''. Not one to be cowed down, Pawar put up another note in April, with a sarcastic message marked to Jitendra Bhargava (Director-Network Marketing Division): ``You may kindly note that against your estimate of a loss income of CRS companies, the Income Tax Department has raised a huge income tax liability. ... you may kindly inform the MD the progress regarding the efforts ... for convincing the CRS companies to own up the Income Tax liability.''