Govt Chal­lenge of Voda Rul­ing may Ham­per Retro-tax Talks

Chal­lenge over .₹ 8,500-cr tax dis­pute will be added com­pli­ca­tion, says com­pany’s lawyer

The Economic Times - - Companies - Deepali.Gupta @times­group.com

Mum­bai: The gov­ern­ment’s de­ci­sion to chal­lenge a court ver­dict to ex­empt Voda­fone from a .₹ 8,500-crore tax de­mand may ham­per any out-of-ar­bi­tra­tion set­tle­ment talks In­dia and the UK telco could po­ten­tially have to re­solve the long-stand­ing tax dis­pute over the lat­ter’s Hutchi­son stake buy in 2007.

“This (the de­ci­sion to chal­lenge) is an added com­pli­ca­tion to the Voda­fone-gov­ern­ment tax ar­bi­tra­tion,” Anu­radha Dutt, Voda­fone’s lawyer on the tax woes of the com­pany, told ET.

Her com­ments come af­ter a late Wed­nes­day night devel­op­ment in which the In­come-Tax de­part­ment said it had de­cided to move the Supreme Court to chal­lenge a Bom­bay High Court rul­ing favour­ing Voda­fone.

The chal­lenge comes de­spite a se­ries of com­ments from high of­fi­cials and min­is­ters that In­dia would stay away from such ap­peals to al­lay con­cerns around so­called tax ter­ror­ism which had hurt its im­age as an in­vest­ment des­ti­na­tion. But things be­tween Voda­fone and the gov­ern­ment — in­volved in a Lon­don ar­bi­tra­tion over the .₹ 20,000-crore with­hol- ding tax plus penalty dis­pute — had be­gun to sour, of late. A midFe­bru­ary tax de­mand by the In­come Tax de­part­ment in the same case un­der ar­bi­tra­tion evoked a strong re­sponse from the telco, which ex­pressed its ex­as­per­a­tion.

The gov­ern­ment though fol­lowed up by ex­tend­ing a one-time set­tle­ment of­fer un­der which com­pa­nies could pay the prin­ci­pal de­mand and have in­ter­est charges waived in all such cases in­volv­ing ret­ro­spec­tive tax­a­tion. Voda­fone’s ini­tial re­sponse was luke­warm, and then it went ahead and ap­proached the In­ter­na­tional Court of Jus­tice seek­ing in­ter­ven­tion in the ar­bi­tra­tion pro­ceed­ings to re­solve the ret­ro­spec­tive tax case. A gov­ern­ment of­fi­cial ask­ing not to be named said the I-T de­part­ment’s lat­est move was more the out­come of Voda­fone’s in­ac­tion to­wards the one-time set­tle­ment of­fer made in the Union Bud­get this year.

Sources at Voda­fone said that if it takes up the gov­ern­ment’s set­tle­ment of­fer, it will find it dif­fi­cult to jus­tify the move to its share­hold­ers, hav­ing got a Supreme Court ver­dict, back­ing its stand that there was no with­hold­ing tax due while buy­ing Hutchi­son’s In­dia busi­ness for over $11 bil­lion in 2007. On Wed­nes­day, the I-T de­part­ment de­cided to ap­peal against the de­ci­sion of the Bom­bay High Court in a sep­a­rate case that also went in favour of Voda­fone. In that case, Voda­fone ar­gued that .₹ 8,500 crore tax de­mand on the equity or op­tions trans­fer were al­ready a part of the orig­i­nal with­hold­ing tax de­mand, which the apex court had ruled in the com­pany’s favour.

Ex­perts said In­dia’s chal­lenge may hit the cur­rent ad­min­is­tra­tion’s im­age as one that was mend­ing the tax regime for cor­po­rates, but are di­vided on the mer­its of the case.

“In our view, the judg­ment of the HC was quite rea­soned and based on cor­rect in­ter­pre­ta­tion of prin­ci­ples of trans­fer pric­ing and realm of in­come charge­able to tax,” said Rakesh Nan­gia, man­ag­ing part­ner of char­tered ac­count­ing firm Nan­gia & Co.

He, how­ever, added that the out­come from the Supreme Court’s hear­ings will bring clar­ity and fi­nal­ity for a num­ber of other com­pa­nies. Hi­man­shu Sinha, part­ner and tax head at law firm Tri­le­gal, said that while in the ear­lier case, the gov­ern­ment’s tax claim was ar­bi­trary, in this one there is fair rea­son­ing that could be in the gov­ern­ment’s favour.

The I-T Dept de­cided to move the Supreme Court to chal­lenge a Bom­bay High Court rul­ing favour­ing Voda­fone

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