A decision on sending a tax notice to Vodafone on its acquisition of assets in Hutchisson-Essar (now Vodafone India) through a $11.1-billion deal is likely to be taken after two weeks.
The Income Tax Department had issued a Rs 11,000-crore tax notice, including interest, on Vodafone, saying it should have deducted tax at source from Hutchison. However, the Supreme Court had turned down the department’s plea that it had jurisdiciton to tax Vodafone.
A senior legal advisor to the finance ministry said Budget 2012-13 had been passed recently, and a decision on the notice to Vodafone would be taken after two weeks. He said the process of sending notices to Vodafone and other companies involved in buying assets in India through foreign deals could not be stopped since Parliament had passed the Finance Bill, 2012. The notices, however, could be delayed, he added.
| SNAPSHOT |
| * FinMin, LawMin in talks to draft circular on retrospective amendment rules |
| * I-T Dept to soon state cases to be taken up under the amendments |
| * I-T Dept action likely only after due nod from top levels in the government |
| * I-T Dept may revive demand for tax after studying implications of its notice |
The Finance Bill, 2012, contains retrospective amendments to the Income Tax Act, 1962, and enables deals like Vodafone’s to be taxed for Indian assets.
Officials said the Income Tax Department was awaiting a circular that would specify the rules for retrospective amendments. The finance ministry was consulting its law counterpart to draft the circular, they said.
Experts said the department would soon state, through a circular, the cases to be considered under the amendments. Rahul Garg, leader (direct tax), PricewaterhouseCoopers India, said, “Now, since the Finance Bill had been passed, it was important that both taxpayers and tax officials were able to implement this as intended.”
He stressed many matters were not dealt with in the Finance Bill, and required clarity for meaningful implementation. “For indirect transfer, it needs to be clarified what the threshold for substantial assets in India is. Also, how would the cost of acquisition be determined in a multi-layered structure?” he asked.
It was also important to clarify once the tax was asserted with reference to a transaction based on a certain value, tax should not be levied again on the same valuation, he added. He hoped the circular would clarify these matters, by way of frequently asked questions and examples.
An income tax official privy to the developments said though the Finance Bill had been passed, the department was likely to revive the demand to tax the Vodafone deal only after studying the possible implications of the notice by the company under the Bilateral Investment Promotion Agreement (Bipa).
The official indicated considering the implications of the case, the department would take action in this case only after getting due approval from the top level in the government.
Finance Minister Pranab Mukherjee had earlier clarified retrospective amendments did not override the provisions of double taxation avoidance agreements India had with 82 countries. He had added the amendments would not be used to reopen cases in which assessment orders had already been finalised.
These details are likely to be part of the circular. In 2007, Vodafone had bought 67 per cent stake in Hutchison Essar through a foreign deal.
