US court ruling may cost India $37 million

WASHINGTON: In a decision that may cost India $37 million, the US Supreme Court has ruled that the country's courts can decide New York City's property tax disputes with foreign governments.

Federal law "does not immunise a foreign sovereign" in such cases, Justice Clarence Thomas wrote in a 7-2 decision on Thursday in the New York City's case against India's permanent mission to the United Nations.

The city sued the Indian government in 2003 as part of a drive to collect property taxes from countries that house their UN mission or consulate employees in the same buildings where they operate diplomatic offices.

India, which allegedly owed $16.4 million then, would now have to pay $37 million including interest on the disputed amount at 18 per cent per annum, according to the city.

Foreign governments have tax exemptions for the diplomatic mission section of their New York properties. The city says they must pay taxes for the space that houses employees. Mayor Michael Bloomberg said the decision will help ensure that foreign governments pay "their fair share in city taxes."

New York's corporation counsel Michael Cardozo, who argued the case before the Supreme Court, said, "now India as well as other countries, know the city "means business.'"

The city has not released the names of other countries it says have not paid taxes, but suggested a figure of $100 million as "a conservative estimate of what is currently owed by several countries."

In the present case, the Bush administration sided with India reversing a position the federal government took two decades ago, but the Supreme Court decision could cause other governments to take reciprocal action on US properties abroad.

"The concept of diplomacy is that what's good for you is good for me. There will be some reciprocal act that takes place vis a vis US diplomatic installations in India," said lawyer Andrew Odell.

Under the Foreign Sovereign Immunities Act, the jurisdiction of US courts generally does not extend to foreign governments. But there is an exception when "rights in immovable property" are at issue.

The Supreme Court said the exception applies in the New York case. The city seeks to establish the validity of tax liens on the buildings.

In dissent, Justice John Paul Stevens wrote that the case "is a dispute over a foreign sovereign's tax liability. If Congress had intended the statute to waive sovereign immunity in tax litigation, I think it would have said so."