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Tax demand against Vodafone and Cairn Energy remains valid

Tax demand against Vodafone and Cairn Energy remains valid

Tax demand against Vodafone and Cairn Energy can’t be disputed, said CBDT. CBDT today said they should promptly avail the one-time dispute resolution scheme announced in the Budget to close the issue by paying the principal tax and getting waiver on interest and penalty.

CBDT Chairman Atulesh Jindal told PTI "as long as" the retrospective amendment of the IT Act passed by Parliament remains valid, the "demand (of tax against them) remains valid."

Jindal, in an interview to PTI, said apart from UK's Vodafone Group plc and Cairn Energy plc, there are about a dozen more such companies which are facing similar demands due to the retrospective amendment of the Income Tax Act.

"They (companies) are basically challenging the retrospective amendment. Retrospective amendments have been passed by Parliament. They have not gone against passing of retrospective amendment before any court...so, as long as the retrospective amendment is valid, the demand (of the IT department) remains valid.

Finance Minister Arun Jaitley, in his Budget speech yesterday, announced a new dispute resolution mechanism for such companies who are in confrontation with the taxman's action.

"In order to give an opportunity to the past cases which are ongoing under the retrospective amendment, I propose a one-time scheme of Dispute Resolution for them," Jaitley had said while presenting the Budget for 2016-17 in Parliament. The scheme entails paying up of the principal tax by the company that has been served with a tax notice and at the same time getting a waiver on interest and penalty.

The CBDT boss said government has always made it clear that tax disputes "are not" covered under the Bilateral Investment Promotion and Protection Agreement (BIPA).

"It is a different matter that they (companies) have gone under BIPA and our stand is that tax disputes are not covered under BIPA. That's the situation. Hence, a sort of opportunity has been given to settle these disputes (in the Budget)," the Central Board of Direct Taxes (CBDT) Chairman said.

He said the department cannot go back on the tax demand raised against these firms as assessment orders were "already passed" and "demands raised" before the IT Act was amended with a retrospective effect.

When told that the companies involved have not shown much initial enthusiasm to the proposal, Jindal said he is hopeful and thinks "they (companies) should come forward."

Commenting on the Budget proposal, Cairn spokesperson had said that "while international arbitration proceedings have commenced to seek resolution of the tax dispute, Cairn notes the efforts of the Government of India to resolve the retrospective tax issue and will study the text of the Budget speech."

A Vodafone spokesperson had said: "We will of course study the details of what the Finance Minister has proposed today, while continuing to seek resolution of this matter through international arbitration.

"Vodafone has always maintained that there was no tax to pay at the time it completed its acquisition of Hutchison business in 2007... Vodafone was the acquirer in this transaction. The company made no capital gains whatsoever." While Cairn Energy is facing a tax demand of Rs 10,247 crore on a 2006 business re-organisation it carried out in its India unit before getting it listed, Vodafone is facing tax liability over its USD 11 billion acquisition of a 67 per cent stake in the mobile-phone business owned by Hutchison Whampoa in 2007.

Jindal said a few of the other such cases of indirect transfer of assets coming under the ambit of the retrospective amendment where IT demands have not been raised proceedings are pending due to reasons like 're-opening' of the case or some other procedure, will have to go through the "approvals" and "clearances" of a Budget announced committee which will be headed by the Revenue Secretary and have the CBDT Chairman as a Member.

When the Finance Minister was yesterday asked if government hopes to arrive at the desired settlement, when the involved companies are disputing the principal liability in first place, he had said: "They have two options- either to litigate or settle."

(Image credits: indiatimes)

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