Don’t Let Vodafone Get Away Without Paying Taxes: CBDT ex-Chief
Editorial Board
Shri. Sudhir Chandra, former Chairman of the CBDT, sends out a powerful emotive appeal that letting MNCs like Vodafone escape without paying tax on the trillions of dollars that they earned from India will wreck the Indian economy and spell havoc for the common man. He rues the misconception because of which the common man treats the tax evaders as heros and the tax department as villans
Mr. Sudhir Chandra, CBDT’s ex-Chairman has come out with all guns blazing in support of the retrospective amendments in the Finance Bill 2012 seeking to nullify the judgement of the Supreme Court in Vodafone International vs. UOI 341 ITR 1. In a hard-hitting and no-holds barred article in the Business Standard, Sudhir Chandra attacked tax consultants who think it is their right to create paper SPVs in tax havens to avoid Indian capital gains and when their right to avoid tax is challenged, they shout or grumble.
while some people scream from the rooftops that India does not have adequate infrastructure and needs to invest trillions of rupees to create it, they seem to think that it is not their responsibility to pay tax and that the government should somehow find the money to create infrastructure without building up a deficit
The CBDT ex-Chief made it clear that there was no ambiguity or uncertainty in the law that if one earned income because of his business in India, he had to pay income tax in India.
Sudhir Chandra rued that while some people scream from the rooftops that India does not have adequate infrastructure and needs to invest trillions of rupees to create it, they seem to think that it is not their responsibility to pay tax and that the government should somehow find the money to create infrastructure without building up a deficit. He cautioned that if everyone were allowed to escape tax, governance will collapse as it did in Greece and if that happened, then the consultants, bankers and foreign institutional investors would move on to greener pastures leaving India behind.
Sudhir Chandra described Vodafone as a “classically right case for lifting the “corporate veil”, ignoring tax haven companies and levying full tax because it (i.e. the transferor) had earned trillions from Indian assets and sought to avoid the entire liability on the basis of a tax haven SPV.
the misconception in the minds of the common man who considered tax consultants who helped MNC’s get away without paying any tax as heroes and the tax commissioners who try to stop them as villains .. the common man ignored the fact that every time someone walks away without paying billions of rupees of tax, the tax burden has to be picked up by the poor and middle class
Sudhir Chandra also rued the misconception in the minds of the common man who considered tax consultants who helped MNC’s get away without paying any tax as heroes and the tax commissioners who try to stop them as villains. He pointed out that the common man ignored the fact that every time someone walks away without paying billions of rupees of tax, the tax burden has to be picked up by the poor and middle class.
As an example of the department’s fair stance in cases of genuine global mergers, Sudhir Chandra cited the example of Unilever which globally acquired the holding companies Brooke Bond and Lipton. Though the ownership of Brook Bond India and Lipton India changed hands, the Indian income tax authorities did not raise a murmur or contemplate “lifting the corporate veil” because it was a genuine global merger.
Sudhir Chandra was candid that retrospective amendments were, in general, unjust and inequitable. However, this was a rare case he said and added that Parliament had no choice but to amend the law with retrospective effect. He said this was a “step in the right direction” and that a “clear message was sent that anyone who wants to do business in India but does not want to pay tax in India is not welcome”.
At the same time, Sudhir Chandra struck a voice of reason when he said that powerful people (i.e. the tax department) should have the grace to pardon the offender and not impose penalty after having collected the tax (“kshama virasya bhushanam“).
Hutchison should be caught and CG should be recovered from it & not from Vodafone… But, in some or the other way the trillions of CG tax must be recovered, as the deal involves transfer of an asset situated in India.
I totally disagree with the urguement of MR.Subdhir Chandar. Every person, whether Individual or company, has to follow the rule of the nation at that time forced in. They follow the Law/Rules being in force in country at that time when they acted . No person can Guess what would exact be happened in furure. Now, it is unfair to bring them in tax net while it was not there in law at that time when they acted. Rather, the govt. and Tax department say thnks to the case who helped them to open their eyes. At least they will try not give such opportunity to any other person in future for tax evadance……Salam Vodafoe
1) While i totally agree with all the above….why is that IT dept goes to ammend and nullify certain silly tax cases which it lost in Supreme Court just for the satisfaction of Ego of respective officers who have their say in deciding tax law for the country…..
2) if dept is going to amend all the rules of tax law where ever it lost the cases…why is that one need to knock supreme court…you can as well frame a law that tax demands are not appeal able there by saving lot of time and money of people…..
3) why is that private people are taxed so much and the govt servants who take good salary and corruption money are given all lot of tax exemptions for their allowances???…..private people salary may appear fat taking into CTC (cost of company concept)…but govt people always look at net pay concept…if CTC is considered govt servants are earning much more than private employees…they have unlimited hospital allowances and pension…that too with growth rate year after year……yet they cry a lot……
income tax act is a contract between assessee and the Department for the year.you earn this amount ,you pay this tax or make this payment,deduct this tax.once the act is passed,you cannot go back and change the terms (Finance Act) in any way to the detriment of the assessee.Making intentionas clear and giving opposite meaning is different.
All the Amendments can have prospective effect but not retrospective effect.
If you analyze the commercials then my view is that Vodafone / Hutch should not be taxed in India as it may result into double taxation in the hands of taxpayer / Foreign Investor. The rationale for the same is as under:
1) Vodafone India would be paying tax in India on its business profits at maximum marginal rate;
2) Going forward / in future years, Vodafone India would be paying tax on its business profits at maximum marginal rate
3) In any business /share value deal the underlying value of shares is dervived by following DCF method of valuation which in turn is computed by discounitng the Profit After Tax of the company
So in the instance case as the Foreign investor / taxpayer he would be required to pay tax on its business profits in India at maximum marginal rate and further he would be also expected to pay tax on transfer of shares whose underlying value is dervied considering the Profit After Tax of the Company.
I can understand the technical interpretation of law that Company and Shareholders are different Person and accordingly both should be taxed – But the Bureaucrat should analyse / wear the shoes of businessmen before drafting harsh tax laws which could have far reaching impact on the Indian Economy and pull out of genuine foreign investors
It would be in the larger interest to tax. Tax should be recovered either from Hutch or Vodafone. GOI should refund the tax to Vodafone, if it is able to recover the money from Hutch. Hutch should come forward and pay tax, as it has made profits from sale of Indian assets. The intention of legislature is to tax profits made from sale of Indian Assets, this was always clear. Hutch is morally bound to pay tax on its gains made in India. Multinationals should avoid double standards.
It is well known that language is inadequate to convey the intention in drafting a provision of law however experienced the draftsman is.The highly paid highbrows,advocates,CAs,etc.,even take advantage of a misplaced comma,full stop,etc.,which are not relevant but which serve their purpose,especially when the learned gentleman on the bench is eager to help,but cannot,but for such outrageous interpretations.Often it is ‘show me the judge,I will show what will be the judgement’.This is from my experience as CIT Appeals for about a decade.I do not mean to offend any particular person in these observations.
Mr. Sudhir Chandra, I may have to completely disagree with you. Had the law been amended without going to the Court, I will agree that the intent to tax was noble. After the Supreme Court had decreed that this is not taxable and after the review petition was also dismissed, these arguements do not hold water. Does this mean that the Courts do not matter? How would then the CBDT would expect a common man to adhere to law?
All the developed nations have already have this provision in their law books. Why did not the CBDT and other learned professionals in the Government not realise earlier that such provision is needed in Indian tax books also? This is a classic case where the lawmakers and the officials not plan/think/startegise in advance, sleep till the events happen and then use all these means to amend law.
This looks more as an act due to injured EGO, highhandedness and scant regard for the courts. I am sorry, this does not sound as an acceptable arguement.
My Dear CBDT ex-Chief while relating this issue to the common man by emotionally explaining that “every time someone walks away without paying billions of rupees of tax, the tax burden has to be picked up by the poor and middle class” forgot that even if Vodafone (or any other corporate for that matter) is now forced to pay tax through retrospective amendment, the Company would be obviously pass on this burden to the customers which is again the poor and middle class.
and therefore, it is better to let the corporate employ this money whether directly or indirectly to provide better & cheap services to poor & middle class instead of giving this money to the government where the resources are deployed in an in-efficient and dishonest manner towards the betterment of poor and middle class.
Before SC judgement in voda tax case in my opinion capital gain on offshore transfer of shares was not taxable in india,however capital gain on indirect transfer of capital assets in india was taxable in india. SC judgement is now the law of the land.Proposed amendment with retrospectve effect is unconstitutional, arbitrary,abuse and misuse of power.It appears that Govt. is becoming indirectly the APPALATE AUTHORITY. SC judgements upheld retrospective amendments which were clarificatory in nature.When SC has interpreted the law,question of clarification does not arise.No doubt to plug the loophole due to present ruling Govt. can amend the law prospectively.Blaming the consultants doing professional duty within legal framework is unfair and bad in taste.
Have been reading the statement from Government functionaries ‘India is not to be tax haven’. Maybe they should see the situation on the ground. India is actually a Tax Hell. It is impossible to deal with the tax authorities. Show Cause Notices, Demand Notices fly off the shelf like anything. And often on such flimsy ground that one would laugh it off, were it not the affacted party. No body is ready to take responsibility. Even if the matter is crystal clear, just becuase some other officer starts a demand process, no one else would dare qush it and would rather let it go throught he rigorous and lengthy process of appeal. Government is the biggest litigant, a fact even recognized by the Government. But no move to see and implement any moves to reduce the same. There is no acountability for officers, who may start frivolous cases and harass the assessees. Legal and Tax Advisors thrive only becuase the tax laws are so complicated and ambiguos. So much productivity could be unleashed, if only there could be reform, where it is really required. The current case of retrospective amendment smacks of high handedness and lack of grace in accepting a judgementm, which has gone against. What to talk of International Investors, First the Government has to learn to respect the Honest Indian Taxpayer.
The Ex-Chairman, CBDT has brought out the entire issue in right perspective. In the Finance Bill the Hon’ble FM made it amply clear that the intention of the legislature is and was always clear in the sense that the transactions impugned in the Vodafone’s case are always chargeable to capital gains tax in India. After all, India is not a tax haven ! It is also to be noted that even after the clarificatory amendment, the affected parties can take recourse to DTAAs in respect of their legal / legitimate transactions.
I strongly feel that the Government has no moral right to change the rules of the game after the finish line.Retrospective amendments are completely unjust and unfair.If they feel that an assessee got away because of the rules which they themselves have framed, then they should take the onus.And why blame the consultants who operate within the framework of the law?
This is a rare article that calls a spade a spade because
1)One must admit that tax consultants & professions mostly take a pro assessee view(who else pays their fees). Just read the pre budget memorandums and see how many amendments are proposed to plug revenue loopholes, which people are admittedly aware of. This same bias reflects in the media since few revenue officials are media savvy, so maximum coverage is given to the assessee’s lawyers
2)Hutch does not have assets in India, and so the deeppockets theory would imply going after Vodafone
3)The deal was announced in Feb07 and the show cause notice issued in Sep07. Certainly not ‘late’. Also, it was not for Vodafone to unlilaterally decide that they are not liable to deduct TDS. As Justice Kapadia said when he was the CFI of the Bombay HC, “the provision under Section 195 is only for a tentative deduction of income subject to regular assessment and the rights of parties are not in any manner adversely affected”. Hence, Vodafone should have deducted TDS from their payment or atleast applied for deduction at a lower rate. They took a business call not to do so and instead appeal, and now they got burnt while playing with fire
proposition is good and with deep sense of patriotism. Why not have the same logic apply to those of our countrymen whose actions and deeds are in the nature of anti-national? why they are protected. Interview of Mr.Santhosh Hegde is a clear index of state of affairs. evasion in crores, amasing huge wealth, destroying the enviornmet etc., etc., the common man cannot raise his /her voice for such issues. if he/she does, it is at their own risk/peril. I do not know how many would subscribe to this view
The question arises, who is liable to be taxed whether vodafone or the Hutchinson. Who prevented the indian tax authorities from taxing the recipient. Both were non resident . if the payer can be noticed why not the payee. Who earned the trillions of Dollars???? vodafone or Hutchinson………..
There is so much debate on whether the retrospective amendment is right or not. Legally it is possible. The question is morally , whether it should have been done ? In the whole debate we forgot to discuss about the laxity, indscipline , arbitrary and casual approach we have been demonstrating towards the framing and implimentation of law. The deal which was made between Hutch and Vodafone was not first of it’s kind in the History of taxation in the world, nor even in India. What we ( our law makers and administrators ) were doing at that time ? Even now what are we doing to enforce the law ? We enjoy pride in troubling the honest tax payer and ALLOWING the big whale to go scot free. There is no use shouting at the thief, when we ourselves left open the doors of our home !
This shows the real picture of the bureaucrat.On what ground the ex-chairman gives such a rubbish statements. Is it because he wants to prove the total inefficiency of the Govt of India and in turn the C..B.D.T. WHO IS RESPONSIBLE FOR ABSOLUTELY HOPELESS AND TOTALLY UNTENABLE DRAFTING OF THE PROVISIONS OF THE TAX LAWS ?
In my personal view the Govt of India and the C..B.D..T. should introspect and try to find out the reason as to how this can happen. When the apex judicial body of the Govt of India has given the verdict which again has been re confirmed on what ground such a statement can be given by the person of the status of ex- chairman of C.B.D.T.?
I think it is high time that the Govt of India should introduce some mechanism under which first of the intention should be made clear and the task should be assign to the responsible officer who should draft the provision, which then can be checked by the legal expert and thereafter the same should become the part of the Law.If thereafter just on account of bad and rubbish drafting if the Govt looses the revenue ,any such officer or even the C.B.D.T. should be held responsible and accountable for any such serious lapses and legal action should be taken on them. The govt of India is not making the Charity to the white elephant but they are the paid servant of the Govt who are being paid for their services out of the Tax being recovered from public at large.
MY HUMBLE REQUEST TO THE EX-CHAIRMAN OF C.B.D.T. WOULD BE THAT FOR THE INTEREST OF THE COUNTRY AND FOR THE IMAGE OF THE COUNTRY IN THE INTERNATIONAL MARKET HE SHOULD STOP TALKING SUCH NON SENSE AND MAKE SUCH A RUBBISH STATEMENT. ALSO GOVT SHOULD TAKE STERN ACTION AGAINST SUCH A RESPONSIBLE( SO CALLED) OFFICERS FOR ANY SUCH ACTION WHICH SPOILS THE IMAGE OF THE COUNTRY. HE SHOULD ALSO REALIZE THAT AS SUCH SUCH A STATEMENTS IS THE ACT OF DIS RESPECT TO THE HIGHEST JUDICIAL BODY OF THE COUNTRY.
YOU CANNOT PLAY A GAME WITHOUT ANY RULE OR YOU CAN CHANGE THE RULE ANY TIME AND EVEN AFTER THE GAME IF OVER AND THE PRIZE HAS ALREADY BEEN ANNOUNCED AND YOU COME OUT WITH RETROSPECTIVE AMENDMENT OF THIS KIND AND SAY THAT YOU ARE NOT THE WINNER NOW JUST BECAUSE WE ARE CHANGING THE RULE IF THE GAME
WHAT A SHAME
The Hon. Finance Minister has justified the Retrospective amendment saying that that was always the intention of the legislature – what took them so long to make their intention clear – they could not convince the Supreme Court and all the judicial authorities below on what their intention was!
This blatant disrespect for the Supreme Court and the manner in which it is being portrayed clearly shows what a terrorist is made up of. It is only a terrorist who can challenge the authorities in broad day light without fear of being subjected to any correction or remorse. If the Hon. Finance Minster has chosen this path he should change his nationality to that of Kasab and also join him in his abode. The respected MPs who chose to permit such amendments to become the law should take up their abode in the Tihar jail, alongside those who attacked the Parliament or waged a war on our country – The defiance of the Supreme Courts authority is no less heinious!!
If Vodafone has deducted the Tax , then Hutch was required to file Tax return and get refund, if it was eligible
TDS is deducted from the price paid and the buyer would not have lost anything had the tax been deducted.The buyer and seller should have entered into agreement in such a way that any future liability arising out of change in law would be borne by the seller. The Government is perfectly correct in bringing in retrospective legislation.Let the buyer pay now and recover it from the seller.
I totally disagree with the views of Mr Sudhir Chandra. Are his views above the judgment of the Supreme Court? Supreme Court has had all the opportunities to discuss the case and thereafter passed a landmark judgment based on the legal position existing as on that date. Also, I am totally against such retrospective amendments of the legislature which seek to reverse the apex court’s decision and place liability again on Vodafone. Its totally unfair to now charge Vodafone based on a retrospective amendment. But surely the tax department can proceed against Hutch who really made the gains. Mr Sudhir Chandra is screaming in his article as if Vodafone has made the gains and should be made liable to pay the taxes. He fails to understand that Vodafone was the payer and it was Hutch who made capital gains by exiting India. Indeed an emotionally charged but thoughtless article!!
This article by Mr. Chandra is well written. It also pleads reasonably with tax authorities not to levy penalty and on the other hand takes to task those consultants who think their advice (which they themselves knew by intuition that it was wrong initially ) is the last word on law. Though, these consultants will again earn hefty fee from corporate, but now in the name of getting this law struck down from the courts after it is duly gazetted. And common man will see with envy these consultants spending lavishly on their lifestyles.
The above speech paints the whole transaction red. The case is not on the party who earned the income, but on the payer who is held to be liable for non deduction. This retrospective amendment casts responsibility on the payer (which was not existing when the payment was made) and not on the person who actually earned the income. In the whole transaction, Vodafone has paid moneys to Hutch and actual beneficiary is Hutch not Vodafone. The TDS was not deducted as per the provisions of law as it stood at that point of time. To retrospectively amend and make the transaction taxable and proceed against the person who has already made the payment defies logic. Is it correct to proceed against Vodafone that though it may be right in not deducting tax as per the provisions of law as it stood at that point of time, Vodafone should now pay up because of a retrospective amendment. In my opinion it is harsh on a person who has not deducted at source – particularly, which the SC also felt , to be right – to simply bring an amedment overnight, retrospectively 50 years back, and put the party back to square one. If this is the intention of the ACT, discovered by the Finance minster, after the detailed judgement by the learned judges, are we not simply belittling the judgement of learned judges who have toiled over the case for months & rendered a commendeable judgement running to 240 pages. The best part is the man who made the money & earned the income is out of the picture and we are behind the man who paid the money