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Attorney-General not in favour of appeal in Vodafone tax case
November, 27th 2014

Attorney-General Mukul Rohatgi has asked the income-tax department to desist from appealing against the Bombay High Court’s October 10 order that British telecom major Vodafone would not have to pay the Rs 3,200-crore additional tax demanded by Indian authorities.

“I have asked the I-T department to accept the high court judgment. I have said in my opinion ‘don’t file an appeal’. I have concurred with the view of the CBDT (Central Board of Direct Taxes) chairman,” Rohatgi has said.

The tax department, believed to be in favour of challenging the high court order, was awaiting advice from the Attorney-General after receiving CBDT’s views on the case. Ideally, an appeal against a court order is filed within a month of the order. In the event of a delay, the petitioner is required to give a delay condonation petition with the appeal.

The case relates to the tax authorities’ claim that Vodafone India had underpriced its shares in a rights issue to its British parent. This claim was for the two financial years ended March 2011, and the amount covered tax and interest on the demand for assessment year 2009-10. After a few days of the first order on October 10, the Bombay HC again ruled in favour of Vodafone and waived Rs 1,400 crore of tax for a different assessment year.

After the high court ruling, a spokesperson for Vodafone had said: “Vodafone has maintained consistently that this transaction was not taxable.”

Vodafone India had issued shares at Rs 8,000 apiece for an overall investment of Rs 246 crore.

Leighton India Contractors: Tax authorities slapped a notice on the company for subscribing to the shares of its Indian arm; it was a Rs 900-cr transfer-pricing dispute
IBM: The US technology major was asked to pay Rs 5,753 cr as income tax for underreporting revenue for 2008-09

Nokia: Received a Rs 13,000-cr tax demand for transfer-pricing violations. The company has since moved court and shut its Chennai unit
Cairn India: Cairn Energy transferred shares of Jersey-based Cairn India Holding to Cairn India in 2006. The transaction in India was valued at about Rs 26,000 cr. Authorities claimed this led to capital gains for Cairn UK Holdings taxable in India. The matter is under consideration

The I-T department determined the share price at Rs 53,000 apiece and claimed the company underpriced its shares which led to an income of about Rs 45,000 apiece. It said the differential in share price ought to be treated as Vodafone India’s taxable income through an international transaction. But the court order said the share issue did not lead to an actual income and there was no international transaction to trigger transfer-pricing provisions. Transfer pricing is the value at which companies trade products, services or assets among units in different countries, a regular part of business for a multinational company but a practice tax authorities feel is often exploited. Rules require all cross-border transactions among group companies to be valued at ‘arm’s length’, or as if the transaction was with an unrelated company. Besides Vodafone, Rohatgi’s opinion could also be seen as a relief for other multinational companies locked in similar transfer-pricing disputes with Indian tax authorities. Shell, IBM, Cairn and Nokia are all fighting similar cases in the country. While this can be treated as a good financial relief for Vodafone, this is not the end of the British telcos’ tax woes in India. The company is fighting another case relating a capital gains tax dispute over its purchase of Hutchison Whampoa’s India assets in 2007. The claim in that case stands at Rs 11,200 crore. While the Supreme Court had ruled in favour of Vodafone, the previous central government had come out with an ordinance to tax the company with retrospective effect. The matter is under arbitration.

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