The clarifications by Finance Minister Pranab Mukherjee that retrospective amendments to the Income Tax Act may not apply to assessments that have been finalised may be open to interpretation—whether Vodafone would get a reprieve on its tax dispute with authorities—say legal experts.
Abhishek Dutta, partner (tax), Hemant Sahai Advocates, asked whether the fact that the Supreme Court had ruled in favour of Vodafone and rejected the finance ministry’s review petition meant the case be dealt as closed? For this, one has to see the fineprint of the clarifications, which may come up after the Finance Bill is passed in the Rajya Sabha. Dutta said he had received queries from various quarters on whether the Vodafone case would be considered closed or not.
However, he said the finance minister’s intention of taxing the Vodafone-Hutchison deal was clear. However, one had to go through fineprint to see if a leeway was possible for Vodafone to get rid of the tax demand, he said.
He added so far, the assessment on the deal had not begun, since Vodafone had taken the government to court in the very first stage—when the demand notice was sent to it.
Aliff Fazelbhoy, senior partner, ALMT Legal, Advocates & Solicitors, said it was not clear what “term assessment is closed” meant. “Does it mean the returns have been filed and not challenged within the two-year limit, or does it mean the expiry of the six-year limit for reopening an assessment?” he asked. “Until we have clarity on this, everyone would be worried,” he said.
Fazelbhoy said as far as Vodafone was concerned, he would agree once the Supreme Court had decided the transaction was not taxable, even if a formal assessment had not been carried out, the assessment must be treated as closed.
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“There is no doubt if they serve such a notice on Vodafone, the matter would be litigated again, both in India to challenge the retrospective amendments, and a possible international arbitration, as threatened by Vodafone,” he said, clarifying this was his personal opinion, not that of ALMT Legal.
Samir Kanabar, tax partner, Ernst & Young, however, said the clarifications did not give any leeway to Vodafone, since no assessment had been done so far.
The finance ministry has sought to make Vodafone the representative assessee in a deal to buy a stake in then Hutchison Essar (now Vodafone India), which the company has contested. The case is pending in Bombay High Court.
The ministry is sure the assessment of Vodafone had not been finalised and hence, it would come under the tax net following the clarifications by the finance minister. Mukherjee had, in the Lok Sabha, said the retrospective clarificatory amendments would not be used to reopen any case in which the assessment order had already been finalised. “I have asked the Central Board of Direct Taxes to issue a policy circular to clearly state this position after the passage of the Finance Bill,” he had said.
It is this circular that would throw more light on whether Vodafone would get a reprieve or not, said legal experts.
In a foreign deal, UK-based Vodafone had bought stake in Hutchison Essar in a deal worth about $11 billion. The tax department believed Vodafone should have withheld tax (about Rs 8,000 crore) on capital gains by Hutchison and paid the tax authorities. However, this stand was rejected by the Supreme Court.