The finance ministry is inclined to file a review petition on the Supreme Court verdict in the capital gains tax dispute with Vodafone over its purchase of shares from Hong Kong-based Hutchison in Hutchison Essar (now renamed Vodafone India).
Last month, a three-judge SC bench ruled in favour of Vodafone, saying capital gains tax was not applicable. The apex court had set aside a Bombay high court decision favouring the income-tax department, which had levied a $2-billion tax on the transaction. It had also told the department to return Rs 2,500 crore earlier deposited by Vodafone International Holdings within two months, along with four per cent interest.
A senior ministry official said it had been decided in principle to go for the review petition and the contemplation now was how to do it. Last week, Finance Minister Pranab Mukherjee met attorney general G E Vahanvati on the issue.
The London-based company’s objection was that the transaction in question took place outside India. The finance ministry’s argument was that the transaction related to Indian assets, even if the deal happened abroad.
| RECALLING SC JUDGMENT |
| KEY TAKEAWAYS |
| * Bombay High Court judgment asking Vodafone to pay Rs 11,000-crore income tax set aside |
| * Tax authorities do not have jurisdiction on a transaction between companies incorporated outside India |
| * I-T department asked to return Rs 2,500 crore deposited by Vodafone within two months, along with 4% interest from the date of withdrawal of the money by the department |
| * Supreme Court registry asked to return the bank guarantee of Rs 8,500 crore given by Vodafone within four weeks |
Apart from the loss from Vodafone, there are similar deals pending before various courts. Which is also why the government, struggling to control a rising fiscal deficit, wants a favourable verdict. The finance ministry is expected to bring in provisions in the coming Budget to plug the loopholes that led to the dispute.
The proposed General Anti-Avoidance Rules, part of the Direct Taxes Code Bill being scrutinised by a Parliament panel, could be invoked on any arrangement if it creates rights and obligations which would normally not be created between persons dealing at ‘arms length’ with each other or otherwise results in avoidance of tax.
Vodafone Plc chairman Vittorio Colao has been in India for the past three days, but has been unable to meet Mukherjee. He is here to review the regulatory climate; he also met the new non-executive chairman of his company’s Indian arm, Analjit Singh, who has taken over from Ravi Ruia. The Ruias have sold their stake in the Indian company.