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Finance Ministry to firm up response in 10 days
January, 27th 2012

The Finance Ministry is likely to firm up its response to the Supreme Court's landmark judgment on the Vodafone case in the next ten days.

The aspect of whether a review petition can be filed is being looked into, said a senior Finance Ministry official who did not wish to be identified.

There are a number of issues including legal feasibility, foreign direct investment implications that have to be analysed before a final call can be taken.

The Government can also bring in amendments to the income tax law in the upcoming budget to specify that an all indirect transfer of shares outside India would be taxable here. I am not saying we will. All that I am saying is we can do this if such a decision is taken.

Speculation is rife that in the Finance Bill 2012, the Government may amend Section 9 of the income tax law to specifically cover indirect transfer of shares. There is also an indication that the Government may look at introducing general anti-avoidance rules (GAAR) through the Finance Bill as there may now be a delay in the enactment of new direct taxes code.

The Standing Committee on Finance, headed by Mr Yashwant Sinha, is yet to finalise and submit a report on the Direct Taxes Code Bill. In the absence of this report, it is unlikely that the direct taxes code would come into effect from April 1 this year.

GAAR is a set of rules that invalidates arrangements by entities to avoid tax. The objective is to prevent taxpayers from taking unintended benefits. It is in addition to the specific anti-avoidance rules such as transfer pricing provisions, dividend stripping transactions in securities and disallowance of related party expenses.

The Central Board of Direct Taxes has already promised it would issue guidelines specifying the conditions and the manner of application of GAAR provisions, including the threshold limit beyond which it would be invoked. The circumstances in which GAAR may or may not be invoked will also be provided, the CBDT has said.

GAAR has been the most fiercely debated aspect of the proposed new direct taxes code.

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