Govt Goes Into a Huddle on Vodafone Issue

Government went into a huddle following a far-reaching Supreme Court judgement in the Vodafone case having a revenue implications of about Rs 11,000 crore.

Immediately after pronouncement of the SC ruling, Finance Minister Pranab Mukherjee and Law Minister Salman Khurshid held consultations on the issue. Cabinet Secretary Ajit Kumar Seth too called on the Finance Minister.

"It is a judgement of the Supreme Court. Naturally, we will have to study the judgement," Mukherjee said without elaborating.

Although the issues relating to taxation of overseas deals are likely to be resolved with implementation of the Direct Taxes Code (DTC), in the Vodafone case the government has an option to either file a review petition or effect legislative changes.

"Right now we only know that it is a unanimous judgement that has gone against the revenue authorities. We have to examine. We obviously need revenue for government's important programmes and the other thing is the certainty in law -- we have to examine both areas," Khurshid said.

On the possibility of filing a review petition, CBDT chairman M C Joshi said, "We will have to check the whole judgement and then decide".

The Supreme Court has set aside the Bombay High Court ruling and asked the Income Tax Department to return Rs 2,500 crore deposited by Vodafone International Holdings within two months along with four per cent interest.

The apex court also asked its registry to return within four weeks, the bank guarantee of Rs 8,500 crore given by the telecom major.

The apex court held that the IT department has "no jurisdiction" to levy tax on overseas transactions between companies incorporated outside India.

Meanwhile, experts opined that the government may not go in for the review of the judgement as the apex court had already discussed the issue thoroughly.

"There is no error in the judgement, so there is no question of going in for a review", said Dinesh Kanabar, deputy CEO and Chairman, Tax, at KPMG said.

On the Direct Taxes Code Bill which contains a proposal to tax similar transactions, PwC India Executive Director Sandeep Ladda said, "This ruling may have limited relevance post-implementation of the DTC."

Chapter XI of the draft DTC Bill, which is under consideration of a Parliamentary Standing Committee, provides for general anti-avoidance rules.

"According to the (DTC) provision, if there is an overseas transfer of shares with an underlying value in India of more than 50 per cent, it is liable to be taxed," Kanabar added.

Some of the major transactions in the recent past over which multi-nationals are fighting similar tax cases in India include SABMiller's buyout of Foster, Sanofi Aventis' acquisition of Shanta Biotech, Kraft Food's purchase of Cadbury's and Vedanta's takeover of Cairn India.

Executive Director of PricewaterhouseCoopers too said "the judgement would give relief only until the DTC comes into play".

Aseem Chawla, Partner Tax Practices at Amarchand Mangaldas said that it is an extremely progressive judgement.

"It is unlikely that the government would go in for a review...The only plausible option before the government is to make legislative amendments," he said adding such amendments would be substantive in nature and therefore cannot have any retrospective effect.