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
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