Why the Vodafone Retrospective Law Will Ruin India: Harish Salve
Editorial Staff
Eminent Senior Advocate Harish Salve, the principal architect behind Vodafone’s spectacular success in the Supreme Court, has sent out a powerful emotive appeal that the retrospective amendments proposed in the Finance Bill 2012 to nullify the judgement of the Supreme Court and several other verdicts will malign India’s image in the minds of its citizens and foreign investors.
Harish Salve was addressing an august gathering of top business persons and high-level decision makers at a meeting organized by IMC a few days ago.
Harish Salve said that a country would prosper only when its economic and political institutions – the institutions that regulate and write economic policy – were transparent and stable and it did not matter what political system produced this. He cited the example of China which, though an autocracy, was able to attract large foreign investment because its political and economic institutions were stable.
.. deep anguish that the Government had sought to betray the solemn assurance given by Manmohan Singh, the Prime Minister of India to his then-counterpart Gordon Brown. When Gordon Brown had asked if the Government had proposed retrospective amendments, Manmohan Singh had solemnly stated that the question did not arise and that as the matter was in court, the Court’s verdict would be honoured. “Is the word of our Prime Minister worth less than 3 billion dollars? Is that what we have come to as a Nation?”
The problem with India, Salve said, was that while its image was already sullied by the political chaos and corruption at high levels like the CWG and the 2G scam and the resultant political paralysis which had crippled the Indian economy, its economic and political institutions were also unstable. He added that this instability in its political and economic institutions was the root cause why India was wrecked by poverty and disparity and enormous social tension.
The perception of corruption cannot be changed overnight, Salve said, because it requires serious structural changes. However, what can be changed is the perception that the Indian economic and political institutions are unstable. It takes little effort to make them look investor-friendly, growth-friendly and stable, Salve added.
The message that has to be sent to foreign investors is that though governments may come and go the policies of growth and the policies of economies will continue uninterrupted. This is the stability that foreign investors crave for, Salve said.
Salve rued that instead of giving the message that India was a picture of stability, the reverse had been done through the proposed retrospective amendments seeking to nullify the Vodafone and other verdicts.
Salve explained that the problem of Vodafone was that of foreign companies investing through downstream companies and seeking to avoid taxes in the country of investment. This problem was not unique to India, he said. All developed and developing countries faced the same problem but they sought to deal with the issue in a sensible and rational manner. Salve cited the example of France, Italy, Germany & Australia which had clear statutory provisions in place to provide that if the investment was done in a particular manner and if it crossed a particular threshold, the investee-country was entitled to tax the transaction; other wise it was not. All this was always prospective and applied to investments made after the coming into force of the legislation. The laws in those countries were clear on their scope and have remained static for years together.
Instead of dealing with the problem in a rational way and adopting the model already put in place by other Countries, India had proposed a “wholesale” retrospective change in the law, Salve said. He also pointed out that in its haste and obsession to nail Vodafone, the Government had not paused to consider that the proposed amendment that a shareholders’ agreement would be an “asset/ property” would be in conflict with the prevailing Company law and contract law, as interpreted in Rangaraj vs Gopalakrishnan AIR 1992 SC 453, that a shareholders’ agreement did not give enforceable rights against the company. “How do you explain to a foreign investor that a shareholders’ agreement, void in Company & Contract law, is nevertheless “property” and would give rise to taxable capital gains” asked Salve. “What sort of an idiotic message are you sending to foreign investors” he asked, underlining the need for the Government to have a long-term policy and to carefully think out its strategies before rushing to legislate.
Calling the amendments “for the removal of doubts” is adding “insult to injury. The interpretation of law is the function of the judiciary and when the highest court has spoken, there is no doubt left. The Government must have the courage of the conviction to say “you said my income-tax department was wrong. Hell with you. I am changing the law to say my department was right!”
Salve also expressed deep anguish that the Government had sought to betray the solemn assurance given by Manmohan Singh, the Prime Minister of India to his then-counterpart Gordon Brown. When Gordon Brown had asked if the Government had proposed retrospective amendments, Manmohan Singh had solemnly stated that the question did not arise and that as the matter was in court, the Court’s verdict would be honoured. “Is the word of our Prime Minister worth less than 3 billion dollars? Is that what we have come to as a Nation?” Salve demanded to know.
The proposed insertion of section 97 to provide that the income-tax department would be entitled to ignore the Tax Residency Certificate provided by a foreign investor came in for special criticism from Harish Salve. Salve pointed out that when he was the Solicitor General, he had been instructed by the Government to argue before the Supreme Court in UOI vs. Azadi Bachao Andolan 263 ITR 706 that Circular No. 789 dated 13.4.2000, which provided that the Tax Residency Certificate was conclusive, was valid and that the Mauritius treaty was deliberately designed to give Mauritius an advantage because of the large Indian diaspora there and the strategic position that Country had in the Pacific Rim. “Why do you sign treaties like this and then enact sections like s. 97” asked Salve adding that most Countries carefully draft their treaties so that a man reading the treaty knows what he can and what he cannot do. In India, everything was left to the tax department to decide despite whatever may be written in the text of the legislation. “Don’t take anything written in the law or the treaty seriously, your fate will be what the income-tax department wants it to be” is the message that we are sending to the World he said.
Salve also took strong objection to all the retrospective amendments being couched by the words “for the removal of doubts”. It is adding “insult to injury” he fumed. “The interpretation of law is the function of the judiciary and when the highest court has spoken, there is no doubt left” he said and thundered that the Government must have the courage of the conviction to say “you said my income-tax department was wrong. Hell with you. I am changing the law to say my department was right!”
Salve was particularly disturbed by the proposed change to the Customs law which sought to make an offence under the Customs Act on par with an offence under the Narcotics Act and the dreaded Prevention of Terrorism Act. If there is a duty dispute of more than 30 lakhs, which included a valuation dispute, the offence was not only cognizable and non-bailable but there was a presumption that the person was guilty. The section reads on par with grant of bail in the case of an offence of murder under section 302 of the IPC, he said.
Salve was also irked by the proposed GAAR and its vague provisions. “With the remarkable reputation that our tax department has, what is the message you are sending” Salve asked rhetorically.
Harish Salve also subtly indicated disappointment with the “deafening silence” amongst the intelligentsia in respect of the proposed amendments. “When men have voices, brutal laws are impossible” Salve said, quoting from Mark Twain and implying that the Indian public had to find its voice and protest against the amendments instead of maintaining a studied silence in the matter. “Why have we lost our voice against this brutality though there had been a global outcry?” Salve asked. “We are no longer in a license raj and you are not dependent on the Government for your business” Salve reminded the august gathering of top-notch businessmen. “You are not beholden to those who sit in North Block and so you must stand up and say that you will not stand for this nonsense” he said. It was a “frontal assault on foreign investment and on Indian law”, he said.
Salve sent out a clarion call that the “time had come” when the Government had to realize that the citizens would no longer these things in their stride. All right thinking Indians had to “stand up and be counted” so that the “voices of sanity would prevail” he said. If this was not done, the price for this would be paid by India as a whole and by the business community in particular, Salve cautioned.
Any idea on the kind of fees Harish Salve would have charged for winning the Vodafone Case ?
Mr. Salve is at the top of the legal field in India. And represented Vodafone in the Supreme Court. When the FM proposed GAAR, it was on behalf of the nation. He said, “I will not declare India a tax haven only to attract foreign investment”.
We are not so dependent on foreign investment as to bend over backwards for them.
I agree with Mr. Salve a government must be stable in order to attract foreign investment. Stability however cannot cost us out principle. “if u make money out of an asset in India, u r liable to pay tax” its as simple as that.
Dear All,
I am personally not in favour of the retrospectively amending the Law. However, we need to consider the following points:
What is he(Mr. Salve) talking about the words of respected Manmohan Singh, how many English persons have honored their words. Their agencies(IAEA) have clearly said that Iraq has capabilities for nuclear bombs. However, nothing was found after the Iraq invasion. Still Saddam Hussain was hanged. Will Bush or Tony Blair(President and PM at that time) have expressed apologies for their wrong action.
Their soldiers are commiting atrocities in the Afganistan. They just come out of their barracks and shoot the innocent civilians. Has anyone of them punished for human rights.
About finality of law, I want to say that there was always finality that vodafone has to deduct and deposit the taxes. Vodafone chose to test the Indian laws and now when they have lost the battle, their counsels is making useless hue and cry. Why Vodafone is silent on the press release issued by the GOI that it(vodafone) was warned in advance for its liablity to deduct tax.
Regaring the Indian Mauritious Treaty, as expressed by Mr Salve himself that it has been so designed to provide the benefit to the large Indian disopera there. Then how can the same benefit be given to any other person. It is clearly against the intentions of the treaty.
Regarding foreign investments, Vodafone is earning revenues in billions in India. Cant it pay their just portion of taxes. It is not possible that they have not accounted for the tax dues while making valuation of the Hutch. Their due diligence reports must have reported these issues. Can they show those due diligence reports.
No other MNC has made the statement that they would not come to India if these kind of transactions are made taxable. It is only the imagination Mr. Salve that foreign investment would have impact due to retrospective amendment.
The English persons have conquered India all by means of going back on their commitments made to the Indian rulers. Mr. Salve should read the Indian history first to know as to how English companies denied their commitments in order conquer India(the jewel in their crown).
I am not against Mr. Salve instead I respect the intellectual level he has. But I just want to make it clear that his job was done when he won the case in the Supreme Court. Now, he should stop the tactic of pressuring the Indian Govt. out of court.
Regards
It is a request to Mr Salve to fork out a good percentage of his fee that he charged from Vodafone to start a movement to correct the ills in the Indian system. That shall be a good contribution from an eminent lawyer for the society and nation for he is so much worried.
Great Mr. Harish Salve as usual. We talk about the Reputation of our Great Country in eyes of Foreign Multinational Tycoons, who does not want to shell out single penny to the treasury of the country from where they make huge money. We try to Advocate such entities I think it is shameful for all of us.
Our Great Ex-Solicitor General is expressing his personal views that by doing some changes, which are not favourable to Multinationals like Vodafone, we RUIN our country. What our Income Tax Laws says “Indian tax laws are very clear that the companies making capital gains from the assets located in India will have to pay taxes either in the country of their origin or in India” Can Mr. Salve tell us that in which country Vodafone has paid any TAX for this Transaction ?
Friends Vodafone has not paid any Tax anywhere in the World on this Transaction. They are Tax evader and shameful matter is that the Great Personalities of our country like Mr. Harish Salve are trying to Advocate such MNCs. They have forgotten that they are first Indians.
India is shining no one can Ruin its image…India’s image is not only on the base of the operations of such Tax evader MNCs. Image of any country can not be judged like this it has to be seen and evaluate by looking to the many other areas such as our Global position in defence, counter-terrorism, trade, investment, science and technology, education, and energy. We must understand that such small matters of Vodafone can not Ruin India.
We all together must asked such so called Great People of our country to stop talking against our country and we must see that they are not misleading the people of India.
Jai Hind
It is surprising that People of repute like Mr Harish Salve are so vocal now but were silent (and acted as govt told him, as he himself says) when govt asked him to argue in Azadi Bachao andolan which has brought the condition that foreign investors are using the Mauritius route to earn billions in India and pay no tax…….
why people like him kept silent for all these years against such Mauritius route….that time he acted as govt told him…….(as he says)………………has that not allowed such deals to be structured where no payment of tax is involved but common man is taxed for everything……even huge black money of Indians is coming back to India through Mauritius route…….why people like him toed the lines of govt but have now become critical when govt has tried to plug that loophole of Mauritius route….
This website is basically meant for bashing taxmen for no good reason. I agree that there are black-sheep among taxmen but the taxmen did not descend from heaven and they are part of the larger society, which contain various kinds of people. This website never gives due credit for the good initiatives under taken by the Income-tax Department but only praises the ITAT, which is, if not more, equally corrupt like the Income-tax Department. If the Taxmen (especially the Assessing Officers) do not make additions and raise demands where there are at least 50% chances of winning in the higher fora, what is recourse for the Government? Does Tax Bar feel that AOs should be mute spectators and pass all orders in favour of the assessees? Do you know that the very existence of Tax Bar depends on the litigation generated by the Department for good or bad? On one hand you give highest credit for the ITAT for reducing the number of appeals ans on the other you turn a blind eye to initiatives taken by the Department to reduce the litigation by upwardly revising the monetary limits for filing appeals. Do you think the Department is 100% useless?
In the context above, it is but natural that you cry foul over retrospective ammendements whereas in UK the Parliament is supreme and you have problems with retrospective ammendments there. What kind of banana republic of India are you envisaging? Do you think common man will die if Vodafone doe not invest in India? Are these investors are flocking to India for charity? Do you think Hutchison Whampoa did not make money by selling its operations in India to Vodafone? Who is Mr Salve to decide that India will be ruined by the Parliament? If the primacy of Parliament of India to make our own laws is not respected, it will be disastrous for the country for any Tom Dick Harry can bully India to fall in line to protect their own economic interest.
After reading the information provided by Mr.Salve, I personally feel that, we should a clear cut tax laws, to understand even school going students and high school student.
Many sections in income tax act, 1961 are confusing and gives more room for understanding in more than one way.
What I suggest , bring an act, 1961 , which should be simple in English.
I hope this suggestion will be taken by all the government officials..
I completely agrre with the view expressed by eminent lawyer mr.harish salve in the speech the judicial verdict in favour of assassee must be hounored by the covt of the day ,more particularly pronounced by the apex court to bring the amendment having retrospective operation is not fairplay game nor level playing field . I am of the opinion tax law and it,s interpretation can not operate in vaccum govt can not approbate and rebrobate at the same time in tax legislation ,as such govt takes diagonaally opposite stand in Azadi bachao case IN THE SUPREME COURT OF INDIA. lawyers being intellectual class should protest about the steps to curb and neutralise the effect of ratio of vodafone case .
Mr. Salve was counsel of Vodafone. How much money/fee he charged from Vodafone, will he courage to tell the public. Is he law maker. The law of the country is doing its work. Why is he so much bothered if the Government wants to tax the Vodafone. Further the interesting issue is that actually the Vodafone is not being charged the tax. The tax was chargeable from Hutch. Vodafone was directed to deduct tax at source from the payment made to Hitch. But he refused to obey the orders. He made payment without TDS. Now it has become defaulter and liable to pay the tax not deducted by it. Whether this action will have any effect on the FDI is not the headache of Mr. Salve. It is to be decided by the Government. Further, retrospective amendments/clarifications can be applicable for Indian then why not for foreigners. The lame excuse and sympathy of Mr. Salve is for his costly customer. It seems he is not bothered for the country but for his fees.
the genesis of the issue lies in the Indo – Mauritius treaty. Even a cursory reading of the TREATY will make EVEN a common sense reader to wonder how can a Govt. can sign such kind agreement. Even an Individual / layman would not have signed such document.
But recollect the extra Ordinary situation at the relevant point of time. India was badly in need of foreign Exchange. So the great proverb ‘ Neccesity is the mother of Invention’ prevailed then and is prevailing even now!!!! [ THOUGH IN DIFFERENT PERCEPTIONS] .
Earlier ” Kashmir Gift’ was in vogue…. prior to that A.O.P. , H.U.F. [ that too multiples] were the trend. TAX PLANNING WAS FASHIONABLE THEN, NOW AND PERHAPS IN FUTURE
The learned author seems to be very concerned that the retrospective amendments proposed in the context of the Vodafone judgement would send out a wrong message to the world and create a negative perception for India….I have my doubts as to whether the respected author would have had the same degree of concern if he would not have been Vodafone’s counsel in the Supreme Court…
Anyway, if we (the so called intelligentsia) are so concerned of the effect of the retrospective amendments on our National Image, shouldn’t we be also equally concerned of the message the Honorable SC’s judgment in the case of Vodafone has sent to the world at large…In the case of Vodafone, the Cayman Co, which held investment in the Indian company, had 1US$ share capital, it did not maintain any financial or corporate data; the consideration for the transaction was entirely based on the valuation of the Indian company without assigning any value to the Cayman Co or any of the intermediary Mauritian cos; the deal was subject to FIPB approval in India and so on…Inspite of all this, the Honorable SC held that the transaction was for transfer of the share capital of the Cayman Co and transfer of the Indian company was only a consequence of such transfer…Wouldn’t it send out a message that even though worldover countries are focusing on Substance over Form, India still continues to be a soft state and it is not difficult to get away with a significant tax evasion and defend any aggressive tax planning. Should the Country, especially where a significant portion of the people are poor, be deprived of its legitimate dues…Shouldn’t the Legislature step-in in this exceptional situation and ensure that the Country gets its legitimate dues and at the same time a message is sent out that such aggressive tax plannings will not be tolerated in India….
Ultimately, everyone will agree with the economic principle “High Risk – High Return” Thus, people engaging in aggressive tax planning will appreciate that the risk is high in such cases and hence if the risk materializes the cost is also high….
Let us ask another question:
Suppose an Indian company -I is controlling 20 other companies incorporated abroad and carrying business abroad.
The promoters of Indian company -I sells shares to other person whereby buyer acquire control over 20 foreign companies as well.
The transferor (Ex-promoter/ controller shareholder) pays capital gain tax in India in relation to selling shares of Indian company I.
Whether GOI will distribute a share of capital gins tax with other countries in which 20 controlled companies are located?
Whether government of other countries in which those 20 companies are located can tax them because there was change in ownership of holding/ controlling company I.
The obvious answers to both questions are NO.
Then why GOI is trying to impose capital gains tax when there is no transfer of a capital asset (sahres of holding company) in India.
The proposed amendment is just result of prejudices and bureaucratic whims and cannot be called legislative intention.
The other question is how legislative intention as on 01.04.1961 is determined in 2012?
Unfortunately our members in parliament are concerned and bothered only for their political mileage and have least concern about reputation of country, corruption, wealth of country lying abroad highhandedness of government and government officers unreasonable laws etc.
I agree with Shri Harish Salve. Some readers have criticised him on his writing in case of Vodafone because he argued that case and people have tried to find his personal interest. This is not so.
The moot question is about credibility of the public of India, Government of India, and judiciary of India. The way in which any transaction is deemed as a tax avoidance measure and tax payer is deemed as chor is great insult on taxpayers of India and other countries dealing with India.
Earlier also voices have been raised by way of articles however, there is no impact. When attitude developed by GOI and its officers is that we do not care for court’s judgments and can change law any time then there is no need of courts.
Now it is time that courts must come heavily on retrospective amendments in tax laws for meager amount of tax collection. Rs.40K crore is nothing against the reputation of country however, when we recall that meaning of ‘entertainment’ was amended with retrospective effect, to overrule judgment of the Supreme Court, whereby expenses for tea , coffee, snacks were to be disallowed, then present amendment is definitely involving a large sum of money but still it is not so large that we should ignore reputation.
It takes long time to build reputation and goodwill but reputation and goodwill can be ruined in moments.
Let us hope that what Pranab Da has done as FM will not be approved by him or will be overruled by him as PRESIDENT OF INDIA.
APPENDED BELOW IS AN ARTICLE IN VIEW OF SOME OF EARLIER RETROSPECTIVE AMENDMENTS
Should we abolish courts and institutes of law and commerce?
Yes, if we go by the trends of revenue officers as well as amendments in tax laws.
Should we agree to what the tax officer want and ignore the law? Yes.
CA DEV KUMAR KOTHARI
Summary:
In view of the proposals in the Finance Bill 2010 regarding service tax on commercial rent, it can be said that there is no need to learn law and monitoring of law by courts. Because courts judgments can be nullified any time.
The real question:
The title of the article is kept in a question form, and this question is real problem our public is facing and the problem may become intense, if the trend is allowed to continue.
Education of law:
Various institutions like law institutes, ICAI, ICWAI, ICSI, provide wholesome education and training about laws in their courses. In course of graduation in commerce, engineering courses, medical courses, management courses some basic education about law is provided. For example, the author had some preliminary studies during his class IX to XII in the subject ‘commercial practices’. In three years degree course of B.Com there was sufficient studies of law which provides insight into the basic fundamentals of a good law and its enforcement. According to such fundamental studies most important learning is that law is to be read as it stands at any point of time, no words can be added or omitted except in rare cases. The law must be within authority of the law makers. During three all India courses of ICWAI, ICSI and ICAI also wholesome studies of law were made and basics of good law were reinforced.
Everyone is assumed to know law biggest dillemma:
The biggest dilemma is that every person is assumed to know the law. And excuse of not knowing legal position is generally not considered a good and sufficient excuse as cause for non compliance of law.
Retrospective amendment in tax laws:
The government has as a routine adopted mechanism to amend tax laws with retrospective effect. Such amendment are generally because of inactions and inefficiencies of revenue officers in compliance of legal procedure and taking timely actions. Every year there is whole some amendments in tax laws through regular budget (Finance Act) and several other amendments are made from time to time, yet amendments with retrospective effect are taking place as a general routine to nullify the legal opinions of courts, judgment and orders of courts and opinions of legal professionals.
The provision under study:
In this study we are concerned with provisions relating to service tax on commercial rent. To cut short the issue and directly coming to the point it is suffice to say that when the tax on renting was proposed in the Finance Bill 2007, an article written by the author was published in the Service Tax Today (A Taxmann) publication) in MARCH 22,2007 PAGE 55 (Mag.). a renowned publication of Taxmann. The publication of article was during discussion and suggestions phase and much before the Finance Bill 2007 was enacted.
Suggestions by the author on proposed charging section in the Budget 2007:
When the budget 2007 was announced, the author had written above article and request was made to reconsider levy and some suggestions- make tenant, as service receiver liable to register and pay service tax”.
In the article author had made detailed observations on the budget proposals about service tax on commercial premises and expressed that only some of services in relation to renting can be brought in tax net as per proposed section. The author had also made suggestions for consideration of the Finance Minister, with highlight of the relevant suggestion in this context, as follows:
Request and suggestions to the Finance Minister:
It is requested and suggested to the honorable Finance Minister to:
Reconsider the proposal in view of constitutional validity and if found inconsistent with constitutional provisions and also inconsistent with the concept of service tax please drop the same.
If found correct and desirable, to impose tax only on portions of buildings which are used for commercial purposes.
To make the service receiver liable to pay service tax on service used. This will avoid revenue leakage. For example, suppose a building is owned by four persons who let out the same to a company each receiving rent of Rs.60000/- per month amounting to Rs.7,20,000/- per year. In this case all owners may be exempt from service tax. Whereas the tenant, if made liable to pay service tax , will have to pay tax on entire amount of Rs.28,80,000/- paid to four owners.
In case of business organizations several properties are taken on rent from several owners. It would be difficult to monitor owners, instead of that tenants who are organized persons can manage tax affairs easily and it would be easy to monitor them.
To avoid confusion words “by renting ” can be used in meaning of taxable service as follows:
“taxable service” means any service provided or to be provided —
to any person, by any other person by renting of immovable property for use in the course or furtherance of business or commerce”.
This is because the words ‘in relation to renting’ can be construed as service rendered to land lord or tenant in relation to renting of property and not the rent itself.
Therefore, as per clause (e) of the above suggestions it is clear that the author had in clear terms indicated in his article that the scope of taxable services, as per proposed charging section can be construed to be restricted to services provided by any person to other person (likely to be land lords and tenants) only in relation to renting of properties and not renting of property itself. The author had also suggested proper language to be used in charging section. However, as usual our bureaucrats being overconfident had not taken care of such an important suggestion at right time. If all the suggestions put forth by author were incorporated in the law, the revenue could have gained substantially and without doubt.
Delhi High court’s judgment and subsequent legislation:
The judgment in HOME SOLUTION RETAIL INDIA LTD. Versus UOI & ORS. 2009 -TMI – 33136 /14) S.T.R. 433 (Del.), 2009 (237) E.L.T. 209 (Del.), 2009 (92) RLT 519 (Del.), [2009] 20 STT 129 (DELHI) was rendered on 18 April 2009 and it has wide publicity also. In this judgment the court has held that the notification is ultravirse the Act and there is no service, there is no value addition in course of renting out property. After this amendment Finance (No.2) Act, 2009 was introduced and enacted. However, no amendment was made in the law. Rather in complete disregard of the judgment of Delhi High Court, revenue attempted to collect tax on rent. Again Delhi High Court was approached and the high Court held that such attempt should not been made because any stay order has not been issued by the Supreme court against its judgment. After this now we find proposals in the Finance Bill to regularize all actions of the revenue and amend law with retrospective effect.
Proposed amendment in the Finance Bill 2010:
We find the following relevant proposals vide calsues 75 and 76 of the bill (with highlights provide):
75. In the Finance Act, 1994,—
(A) in section 65, save as otherwise provided, with effect from such date as the Central Government may, by notification in the Official Gazette, appoint,—
Xxx
(h) in sub-clause (zzzz),—
(i) for the portion beginning with the words “to any person” and ending with the words “business or commerce”, the following shall be substituted and shall be deemed to have been substituted with effect from the 1st day of June, 2007, namely:—
“to any person, by any other person, by renting of immovable property or any other service in relation to such renting, for use in the course of or, for furtherance of, business or commerce.”;
(ii) in Explanation 1, after item (iv), the following item shall be inserted, namely:—
“(v) vacant land, given on lease or license for construction of building or temporary structure at a later stage to be used for furtherance of business or commerce;”;
Validation of action taken under subclause (zzzz) of clause (105) of section 65.
76. Any action taken or anything done or omitted to be done or purported to have been taken or done or omitted to be done under sub-clause (zzzz) of clause (105) of section 65 of the Finance Act, 1994, at any time during the period commencing on and from the 1st day of June, 2007 and ending with the day, the
Finance Bill, 2010 receives the assent of the President, shall be deemed to be and deemed always to have been, for all purposes, as validly and effectively taken or done or omitted to be done as if the amendment made in sub-clause (zzzz) of clause (105) of section 65, by sub-item (i) of item (h) of sub-clause (5) of clause (A) of section 75 of the Finance Act, 2010 had been in force at all material times and, accordingly, notwithstanding anything contained in any judgment, decree or order of any court, tribunal or other authority,—
(a) any action taken or anything done or omitted to be taken or done in relation to the levy and collection of service tax during the said period on the taxable service of renting of immovable property, shall be deemed to be and deemed always to have been, as validly taken or done or omitted to be done as if the said amendment had been in force at all material times;
(b) no suit or other proceedings shall be maintained or continued in any court, tribunal or other authority for the levy and collection of such service tax and no enforcement shall be made by any
court of any decree or order relating to such action taken or anything done or omitted to be done as if the said amendment had been in force at all material times;
(c) recovery shall be made of all such amounts of service tax, interest or penalty or fine or other charges which may not have been collected or, as the case may be, which have been refunded but which would have been collected or, as the case may be, would not have been refunded, as if the said amendment had been in force at all material times.
Explanation.—For the removal of doubts, it is hereby declared that no act or omission on the part of any person shall be punishable as an offence which would not have been so punishable had this amendment not come into force.
The suggestion of author is now implemented:
From above amendment proposed vide clause 75 in section 65(105)(zzzz) one can notice that the suggestion which the author placed after the Finance Bill 2007 was circulated, is now finding place in the law. The way in which amendments are proposed, clearly shows that we need no education of law, and courts. Because the law is totally uncertain and one cannot read law as it stands at any particular time because it can be amended at any time in future.
Looking at old published article author feels that his education in law was good and could be very useful if his suggestions were implemented on time. However, when we look at the amendment one has to be sad to know that there is no use of studies in law and their application.
Now author wonders as to
Why he studied tax law ?
Is there any need to study law particularly tax laws?
Why not to just follow what the tax officer want?
The only question relevant is whether the Indian Income Tax Department had indeed cautioned Vodafone on its responsibility to deduct tax at source before Vodafone made payment to Hutchison, and whether Vodafone consciously chose not to give heed to that advice!
Mr Salve is talking about FDI.ask him how much FDI came to India by the transaction in question.Vodafone acquired a empire without paying a penny in taxes.I know Vodafone was informed well in advance to deduct TDS by the Deppt in Mumbai,still it ignored the advice.I will like to request Sh Salve not to create a sympathy for the company to whom he charged by minutes.he is citing example of Gordon Brown,see how many retrospective amendments have been made in the British law.It is well within the right of the govt to issue clarifications!!!!
We fully agree with Shri Harish Salve and support his views.
Legally deeming any transaction as a tool to avoid tax is great insult to the public of India and now public of other countries.
When every year law is changed, why an amendment should be given retrospective effect?
Retrospective amendments is indication of total casual approach of government and its officers on style ‘who care we can amend law any time’.
Many of amendments have been brought only to shield mistakes and carelessness of government.
The Tax officer wrongly branding any transaction as a tax avoidance device is a common feature. However there we have remedy to appeal against the same.However, what when our law deem certain transactions as designed to avoid tax. This is insult of public at large. We have adequate provisions to deal with tax avoidance, then why certain capital receipts are deemed as income. When revenue looses a case before court, the government brings an amendment with retrospective effect. This is very bad for reputation of our nation, government and public at large. If our laws are not certain and reliable how our public can be reliable ?This is the big question in mind of everyone. I append below one of my earlier article published and web-hosted.
WE DO NOT NEED TAX COURTS WE MUST ACCEPT WHAT THE TAX OFFICER WANT.
CA DEV KUMAR KOTHARI
Summary:
In view of large number of amendments in tax laws to give effect with retrospective effect and many times to change settled legal position, by court rulings one can only conclude that we do not need tax courts, we should not endeavor to obtain justice, but we can simply go by wishes of the tax officers. ‘Amendments with retrospective effect’ have now become routine. The Finance Bill 2010 is also not an exception. Retrospective amendment regarding service tax on commercial rent is one of latest such amendment which suggest that we need not maintain tax courts.
The real question:
The real question before us is should we seek justice from our courts or just surrender before tax authorities?
This question is real problem our taxpaying public is facing and the problem may become intense, if the trend is allowed to continue.
Education of law:
Various institutions like law institutes, universities and ICAI, ICWAI, ICSI, provide wholesome education and training about laws in their courses. In course of graduation in commerce, engineering courses, medical courses, management courses some basic education about law is provided. For example, the author had some preliminary studies during his class IX to XII in the subject ‘commercial practices’. In three years degree course of B.Com there was sufficient studies of law which provides insight into the basic fundamentals of a good law and its enforcement. According to such fundamental studies most important learning is that law is to be read as it stands at any point of time, no words can be added or omitted (except in some rare situations). The law must be within authority of the law makers. During three all India courses of ICWAI, ICSI and ICAI also wholesome studies of law were made and basics of good law were reinforced.
Everyone is assumed to know law- this is biggest dilemma:
The biggest dilemma is that every person is assumed to know the law. And excuse of not knowing legal position is generally not considered a good and sufficient excuse as cause for non compliance of law. When we find that even on administrative matters various High Courts are confused and even Supreme Court is not sure as to whether High Courts have power to condone delay in filing of appeals. When the law laid down by judgment of Supreme Court can be varied by a larger bench of the same court, and then by retrospective amendment to law, how a common man can be considered to know law?
Retrospective amendment in tax laws:
The government has as a routine adopted mechanism to amend tax laws with retrospective effect. Such amendment are generally because of inactions and inefficiencies of revenue officers in compliance of legal procedure and taking timely actions. Every year there is whole some amendments in tax laws through regular budget (Finance Act) and several other amendments are made from time to time, yet amendments with retrospective effect are taking place as a general routine to nullify the legal opinions of courts, judgment and orders of courts and opinions of legal professionals.
Specific recent proposal in budget under study:
Service tax on commercial rent is specifically considered in the write-up.Directly coming to the point it is suffice to say that when the tax on renting was proposed in the Finance Bill 2007, an article written by the author was published in the Service Tax Today (A Taxmann) publication) in MARCH 22,2007 PAGE 55 (Mag.).The publication of article was during discussion and suggestions phase and much before the Finance Bill 2007 was enacted. The author had written above article and request was made to reconsider levy and some suggestions- make tenant, as service receiver liable to register and pay service tax”. In the article author had made detailed observations on the budget proposals about service tax on commercial premises and expressed that only some of services in relation to renting can be brought in tax net as per proposed section. At that time also the author had made suggestions for consideration of the Finance Minister on the points summarized below:
a. reconsider the proposal in view of constitutional validity,
b. if found inconsistent with constitutional provisions and also inconsistent with the concept of service tax then to drop the same,
c. If found correct and desirable, to impose tax only on portions of buildings which are used for commercial purposes,
d. to make the service receiver liable to pay service tax on service used to collect easily and fully tax.
e. to avoid confusion words “by renting ” can be used in meaning of taxable service. This is because the words ‘in relation to renting’ can only be construed as service rendered to land lord or tenant in relation to renting of property and not the rent itself.
However, as usual our bureaucrats being overconfident had not taken care of such an important suggestion at right time. If all the suggestions put forth by author were incorporated in the law, the revenue could have gained substantially and without doubt. As expected the litigation took place, court decided the matter in favor of service providers/ receivers that the notification imposing tax on rent is ultra virse the meaning of taxable service and the rent is not for any service rendered and / or value addition. The matter is pending before the Supreme Court. In spite of Delhi High Courts judgments revenue continued to collect tax, therefore, taxpayers had to approach the Delhi High Court again to get clarification. The counsels (ASGI) gives assurance that recovery action shall not be taken, yet the revenue officers continue such efforts and now the law is proposed an amendment to regularize their actions, and inactions both.
Delhi High court’s judgment and subsequent legislation:
The judgment in HOME SOLUTION RETAIL INDIA LTD. Versus UOI & ORS. 2009 -TMI – 33136 /14) S.T.R. 433 (Del.), 2009 (237) E.L.T. 209 (Del.), 2009 (92) RLT 519 (Del.), [2009] 20 STT 129 (DELHI) was rendered on 18 April 2009 and it has wide publicity also. In this judgment the court has held that the notification is ultravirse the Act and there is no service, there is no value addition in course of renting out property. After this amendment Finance (No.2) Act, 2009 was introduced and enacted. However, no amendment was made in the law. Rather in complete disregard of the judgment of Delhi High Court, revenue attempted to collect tax on rent. Again Delhi High Court was approached and the high Court held that such attempt should not been made because any stay order has not been issued by the Supreme court against its judgment. After this now we find proposals in the Finance Bill to regularize all actions of the revenue and amend law with retrospective effect.
Proposed amendment in the Finance Bill 2010:
We find proposals vide clauses 75 and 76 of the bill which readers may refer to.
Clause 75 is to amend meaning and definition of service (this is more or less on lines suggested by the author) when the service tax on commercial rent was first proposed. The clause 76 is to regularize actions, omissions, and inactions etc.
The suggestion of author is now implemented:
From above amendment proposed vide clause 75 in section 65(105)(zzzz) one can notice that the suggestion which the author placed after the Finance Bill 2007 was circulated, is now finding place in the law. The way in which amendments are proposed, clearly shows that we need no education of law, and courts. Because the law is totally uncertain and one cannot read law as it stands at any particular time because it can be amended at any time in future.
Looking at old published article author feels that his education in law was good and could be very useful if his suggestions were implemented on time. However, when we look at the amendment one has to be sad to know that there is no use of studies in law and their application.
Now author wonders as to
Why he studied tax law?
Is there any need to study law particularly tax laws?
Why not to just follow what the tax officer wants?
The article though well written, needs to be looked into keeping an important fact in mind, that the author fought the case on behalf of Vodafone. Why is the author bothered about one statement the PM of the country made to the PM of Great Britain. It is important to keep that word and betray a billion of Indians and what is rightfully due to India. The time is come for intellects to think beyond themselves and their vested interests and think of the country in the right spirit. I am personally not in favour of retrospective amendments but then it is unfair to the thousands of tax paying citizens of India if people like Hutch and let scot free without payment of Capital Gains. Vodafone was merely the buyer who needed to withhold tax, which as now in public domain was told by the Income Tax Department to do so and at least provide documents so that the Department could come to a conclusion. Vodafone refused to do so then and now Vodafone wants to arm twist Indians because of its financial power. Its time every Indian stood together. It matters to India. The law should be certain. And the law should be certain which says COME TO INDIA, MAKE MONEY ON INDIANS, BUT REMEMBER YOU ALSO HAVE TO PAY YOUR TAXES.
Someone had to ruin the country? Why not UPA-II? Let this govt overturn every judgement of the Supreme Court and then abolish it altogether. Please read this. I think Churchill said at the time of India’s independence:
Power will go to the hands of rascals, rogues and freebooters. All Indian leaders will be of low caliber and men of straw. They will have sweet tongues and silly hearts. They will fight among themselves for power and India will be lost in political squabbles.
I am totally agreed with Shri. Harishji Salve that reputation of India in international market will be ruined, but one need to understand the valuation of VODAFONE was carried out including income derived from Indian operation among the entities who exchange the shares or rights. So why not the benefit in the form of exchequer India should get from foreign enterprises. As we listen that world is talking India has bigger consumer base and good business opportunity in the world then definitely tax on transfer of any rights or benefit from Indian operation across the should be taxed as the future benefit is considered in the valuation of business. Hope industry should understand the tax planning with mischievous mind set should not be take at reputation issue. I agree with Salveji the corruption in the Government department is very big concern than taxing.
I have only 1 question against this sort of lame argument – If taxing International transactions that are structured mischievously just to avoid tax liability, then why even have tax provisions to tax any sort of international transactions? Just declare it openly that foreign entities will not be taxed at all, even if they make huge profits out of our nation!
For every bit of revenue that the exchequer gets, make such provisions to squeeze every single paisa out of the common man, and let the foreign entities have their will & pay no sort of taxes at all!
The difference between “RUNNING” and ‘RUINING” is “I” and the same is more than clear in INDIA.
Most praiseworthy article. After loosing all its prestige and reputation for the different corruption cases and failing in almost every sphere, now the Govt. is trying to damage its reputation by making retrospective amendments to nullify judicial views. In my opinion, it is a crime to amend laws retrospectively and then realise Tax from Tax payers which was not otherwise payable by them and for which they had not made any provision.
This is simply over utilisation of one’s powers.