Centre notifies rules to settle Vodafone retrospective tax case

Vodafone Plc is required to give a declaration to the Income-Tax Department, withdrawing all legal proceedings against the government over the levy of retrospective taxes

The Central Board of Direct Taxes (CBDT) has notified a separate rule to settle the long-drawn retrospective tax dispute with Vodafone Plc.
 
According to it, the British telecom giant is required to give a declaration to the Income-Tax (I-T) Department, withdrawing all legal proceedings against the Central government over the levy of retrospective taxes, besides the indemnity it has to give against any claims and commit not to seek any damages.
 
The new rule is in line with the basic structure notified on October 1 for settling retrospective taxation cases that arose due to the controversial 2012 amendment to the I-T Act.

 

The rule will facilitate the resolution of the Vodafone case, which is different from the cases of Cairn and others.
 
The reason is that the telecom major had faced validation of tax demand under Section 119, introduced in the Finance Act 2012, while in the cases of Cairn and others the tax demands were issued after the 2012 amendment under Section 9 relating to indirect transfers of Indian assets.
 
Considering the technicalities, new rules need to be made for Vodafone.
 
While the two conditions are related to a structure for dealing with possible litigation in future, the final condition is with respect to public declaration.

 
The CBDT on Wednesday notified the “Relaxation of Validation (Section 119 of the Finance Act, 2012) Rules, 2021”, prescribing the forms and conditions for the declaration to be filed by the company for settling its case.
 
Rakesh Nangia, chairman, Nangia Andersen India, said: “The relaxation given by the government is a welcome provision. It will save foreign companies unnecessary litigation in future.”
 
In the case of Vodafone, the tax department raised a tax demand of Rs 11,218 crore over its Hutch-Essar deal in the Cayman Islands. It was different as taxes were raised by validating an October 2010 order of the I-T department.

 
The Supreme Court had in January 2012 quashed the tax demand but the same was sought to be revalidated through Section 119 in the Finance Act, 2012.
 
A penalty of Rs 7,900 crore was also sought from Vodafone.
 
The new rule gives Vodafone 45 days to approach the government for a settlement.
 
Vodafone had challenged the tax demand at an international arbitration tribunal. Supporting the Vodafone argument, the tribunal passed an order against India and directed it to reimburse Vodafone.
 
The government had challenged the arbitration award before a Singapore court.
 
In the Cairn case, the government needs to return Rs 7,900 crore of taxes it has collected.