SC rejects govt request for review of Vodafone judgement

The Supreme Court today rejected the government’s request to review the Vodafone judgement in the Rs 12,000 crore tax case. The apex court ruled that there was no tax liability in Vodafone International Holdings-Hutchison Essar transaction. This could have far-reaching implications for foreign investment in India.

Reacting to the Supreme Court verdict the Vodafone counsel Harish Salve said the move signals that the Judgement was right and it is “strange that the government has not deposited Vodafone’s refund.” He added that he is happy the Supreme Court has shown independence but the theoretically retrospective Amendment can impact the Vodafone case. “The government must rethink amendments to Section 9 of the Income-Tax Act.”

The government had filed a review petition asking the court to reconsider its verdict delivered in January which gave its order in favour of Vodafone and helped improve foreign investor confidence. In its review petition, the government had stated that the SC ruling had mistaken that the offshore transaction, which provided Vodafone holding company a 67 percent stake in Hutch-Essar, was legitimate structured FDI in India.

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ALMT Legal’s Mumbai-based partner Hitesh Jain said the Vodafone judgement is on expected lines but it is also the start of a new battle between the government and Vodafone. He, however, feels the government will send a fresh tax demand notice to Vodafone after the passage of Finance Bill 2012-13.

Even government sources told CNBC-TV18 that the retrospective amendments are fair and that the government will not rethink the act.

[caption id=“attachment_250022” align=“alignleft” width=“450” caption=“Vodafone’s deal is not unique. Various other acquisitions involving overseas deals that appeared closed after the Supreme Court ruling could be affected by the proposal.Reuters”]  [/caption]

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Finance Minister Pranab Mukherjee in the annual Budget had proposed amendments in the Income Tax Act with retrospective effect from 1962 to bring into net overseas deals concerning domestic assets.

As per the proposed amendments, all persons, whether residents or non-residents, having business connection in India, will have to deduct tax at source and pay it to the government even if the transaction is executed on a foreign soil. This move is the government’s attempt at getting around the court’s decision that the government cannot tax a deal between two foreign entities, even if the transaction includes an Indian asset.

The amendments, once carried out, will have implications on Vodafone which won the Rs 11,000-crore tax dispute case against tax authorities in the Supreme Court. It will also impact other similar cases involving taxes to the tune of about Rs 30,000 crore.

Meanwhile, the Finance Ministry has allayed fears of negative impact of the proposed amendments on foreign direct investments.

Agencies