New York: The government of India must pay $42.4 million to the New York City in pending property taxes after a federal judge ruled that diplomatic privileges do not exempt a foreign country from tax obligations. India owes the money, bulk of which is accumulated interest on unpaid taxes, related to its 26-story tower near the United Nations with 20 floors of the building occupied by diplomatic employees.

The verdict released Monday by Judge Jed S. Rakoff of the US District Court in Manhattan also asked Mongolia and the Philippines to pay the city a total of $15 million in taxes. The city filed a suit in 2003 against the three countries, claiming they should pay taxes because non-diplomatic activities like housing low-level staff and, commercial use in the case of the Philippines, took place on their properties. India and Mongolia appealed the city s right to sue, arguing all the way to the US Supreme Court that the Foreign Sovereign Immunities Act of 1976 generally kept the federal courts from hearing suits against foreign governments.

But last year, in a 7-to-2 ruling, the Supreme Court agreed with the city that the tax issue was an exception and allowed the case to proceed in the federal district court. Earlier this year, Judge Rakoff said that the portions of property owned by foreign governments that were used for commercial activities or to house staff other than the consul general and the ambassador to the United Nations were not exempt from taxes.

The city, however, cannot enforce the liens in the usual way by foreclosing on the buildings, The New York Times said. But a provision of the Foreign Operations Appropriations Act penalises countries with unpaid taxes by withholding 110 percent of the debt from their foreign aid.

Source : IANS