Out-of-court deal with Vodafone, Cairn a possibility: Adhia

Says government to consider such an offer; road map for phase out of tax sops by December

The finance ministry on Monday said it would consider settling tax rows with Vodafone and Cairn outside arbitration if the companies were agreeable.

However, any hopes of repealing a retrospective amendment to the Income Tax Act, the main cause of tax rows with the companies, have almost been dashed, with the ministry saying the recently formed R V Easwar panel would not look into the amendment. Revenue Secretary Hasmukh Adhia said the recently appointed committee does not have the terms of reference to look into the retrospective amendments to the Income Tax Act.

The revenue secretary also said the ministry would come out with a road map by next month for phasing out corporate tax exemptions and to gradually reduce the tax rate to 25 per cent over four years.

Asked if the government was open to the idea of an out-of-arbitration settlement in the Vodafone and Cairn cases, Adhia said, "They had invoked arbitration and we have responded to it. And if there is an offer for an out-of-court settlement, the government will consider it."

Vodafone had named Yves Fortier of Canada as its nominee on the arbitration panel, which was to also have a nominee from the government and an independent member. The government had appointed former chief justice of India R C Lahoti as arbitrator. However, he had recused himself. In the Cairn case, the government has not appointed an arbitrator. Cairn Plc, the earlier promoter of Cairn India, had appointed Washington-based Stanimir Alexandrov.

The government is locked in a Rs 20,000-crore tax dispute with the UK telecom major. The tax dispute with Cairn Energy Plc is of Rs 10,246 crore. Both the cases, of Vodafone and Cairn, relate to retrospective amendments of the I-T laws carried out by the United Progressive Alliance government in 2012 to overturn a Supreme Court verdict, which had favoured Vodafone.

After the setting up of the committee, Easwar had told Business Standard he would consult committee members to assess whether the retro amendments would be a part of its terms of reference. The panel was constituted to suggest alternatives and modifications to rules to bring about predictability and certainty in tax laws. But a caveat was that the recommendation should not substantially impact the tax base and revenue collection.

Adhia said: "I will consult committee members to firm up the view. Not only Vodafone and Cairn, but the ministry is also looking at preparing a road map for dealing with other existing cases of tax litigation."

It is believed that the government was considering an option to raise the threshold limit for cases to be filed before the Income Tax Appellate Tribunal.

In the 2014-15 Budget speech, Finance Minister Arun Jaitley had said a tax demand of more than Rs 4 lakh crore was under dispute and litigation before various courts and appellate authorities. On a road map for phasing out corporate tax exemptions and to reduce the tax rate to 25 per cent over four years being ready by the end of this calendar year, he said: "It should come out."

Jaitley had in the Budget said the basic rate of corporate tax in India, at 30 per cent, was higher than those in other major Asian economies, making domestic industry uncompetitive. This was to be brought down to 25 per cent over four years, beginning 2016-17.