New Delhi, Jan 28
The government Wednesday
decided not to contest a Bombay High Court ruling that telecom major
Vodafone was not liable to pay tax demand of Rs.3,200 crore in a
transfer pricing case, Communications and IT Minister Ravi Shankar
Prasad said and hoped that the decision would boost foreign investors'
sentiment.
"The cabinet has decided not to move the Supreme Court
in this regard. This is an important decision," he told reporters after
a meeting here of the union cabinet presided over by Prime Minister
Narendra Modi.
Prasad said: "Today, the Cabinet by taking a
decision not to challenge in the Supreme Court (the Bombay High Court)
order upholding Vodafone India's contention that the transaction, being
international, is not amenable to tax... we have given a kind of
signal..."
"Mainly, where Income Tax liability is clear,
unambiguous, it shall be charged, where it is over-stretched without any
legal authority, the government will be fair. That is the indication,"
the minister said.
"We welcome the Indian government's decision
not to appeal the Bombay High Court ruling. Stability and predictability
in tax matters are important for long-term investors such as Vodafone,"
a Vodafone Group spokesperson told IANS in an email from Britain.
Prasad
said Finance Minister Arun Jaitley discussed the matter with the entire
Central Board of Direct Taxes (CBDT), Attorney General Mukul Rohatgi
and Solicitor General Ranjit Kumar before arriving at this decision.
"After
legal examination, it was deduced that the Bombay High Court decision
was right and this fruitless litigation is avoidable. Therefore, a
conscious decision has been taken not to file an appeal in the Supreme
Court," Prasad said.
The Bombay High Court, in an order Oct 10,
2014, said the UK-based Vodafone is not liable to pay an income tax
demand of Rs.3,200 crore in a case relating to transfer pricing.
The
Income Tax department had asked the company to pay additional income
tax, alleging that it had undervalued its shares in its subsidiary
Vodafone India Services while transferring them to the parent company.
Earlier
in November, Attorney General Rohatgi had advided the I-T department
not to file an appeal against the Bombay High Court judgment in the
Vodafone tax case.
Transfer-pricing describes the practice of
arm's length pricing for transactions between group companies based in
different countries to ensure that a fair price is levied. The Vodafone
transaction took place in 2010.
The government's highest law
official also said that he was in agreement with the view taken by the
chairman of the Central Board of Direct Taxes (CBDT) in the matter.
The
tax authority issued a show cause notice to Vodafone India Jan 17,
2014, and later passed an order asking it to pay additional
Rs.3,200-crore tax for allegedly undervaluing the shares of its Pune
BPO.
Vodafone Jan 27 moved the Bombay High Court challenging the
I-T order and contended that its transaction on transfer of shares was
not taxable under the Indian tax laws.
"We have conveyed a
message with this decision that shows our fairness. In fact, this
decision gives a message to the investors. Investors' confidence has
been shaken in the past because of very fluctuating tax policy - where
the investors' view and the government's view were completely at
loggerheads," Prasad said.
"The government wants to convey a
clear message to the investors world over... this is a government where
decisions will be fair and transparent within the four corners of law,"
he added.
Cellular Operators' Association of India's (COAI)
director general Rajan S. Mathews told IANS: "We applaud the principle
on the basis of which the government took this decision. It is a clear
signal to the investors. It will help bring in more foreign direct
investment in the sector."
COAI is the business association of GSM players in India.
A.
Didar Singh, secretary general, FICCI, in a statement said: "FICCI
believes that it is a very appropriate decision and this will go a long
way in correcting the perception of the tax administration being
adversarial. It will help in creating a conducive tax environment,
specially for the overseas investment community."
"This decision will also help in uplifting the positive sentiments of the domestic industry further," he added.
