PM didn't assure Brown on retro amendments, says govt

The government on Wednesday said Prime Minister Manmohan Singh did not assure his UK counterpart, Gordon Brown, India would not change the law retrospectively to tax Vodafone.

The letters exchanged between the two heads of states, reviewed by Business Standard, showed in February 2010, Singh had told Brown the law was not retrospectively amended in the Budget that year, but he did not commit that India would not do so in future as well.

Singh’s letter was the response to one sent by Brown in December 2009, in which he had said Vodafone’s acquisition of Hutchison’s shares in 2007 was an offshore transaction and the tax department’s actions appeared to be a departure from the established practice under the Income Tax Act.

 

“Implementing new provisions on a retrospective basis is causing significant concern and uncertainty amongst overseas investors. Companies in the UK and elsewhere need as much clarity and predictability as possible if they are to invest in India,” Brown had said.  

A finance ministry official said Brown was referring to some amendments in 2008 relating to penalty for failure to withhold tax and depositing it, which were upheld by a high court.

Assuring Brown that Vodafone would have full protection of law and access to the legal system in India, Singh said, “I also understand there is no retrospective application of taxation and a recent court judgment has affirmed this position.”

Reports of Singh assuring Brown on Vodafone had surfaced recently, when the finance ministry proposed amendments in Section 9 of the Income Tax Act from 1962, to allow authorities to tax income arising directly or indirectly through the transfer of capital assets located in India.

This was viewed as a move to tax Vodafone after the Supreme Court quashed the government’s tax demand of Rs 11,000 crore on Vodafone and also rejected its review petition later.