The debate over whether the Supreme Court’s verdict in Vodafone International is right or wrong will never cease. While some hail the verdict as “revolutionary“, others can’t conceal their contempt for it for permitting India to become a “banana republic” where foreigners can “loot its resources” without even paying due taxes. We are now at a critical juncture where the Govt is debating whether the retro amendments should be rolled back or not.
This issue is important now because Prime Minister Manmohan Singh announced that a decision would be taken soon on whether the retrospective amendments seeking to supersede the Vodafone verdict would be implemented or not.
Joining the chorus of respected voices who consider the Vodafone verdict to be wrong are two respected voices. That of Ex Chief Justice of India J. S. Verma and Ex Additional Solicitor General Bishwajit Bhattacharyya.
Ex CJI Verma could barely conceal the contempt in his voice. “The Vodafone judgement is one the three judgments of the Supreme Court which are best forgotten or allowed to pass”, he said. The other two judgements that he is referring to is the much reviled “Habeas Corpus case” (where it was held that even fundamental rights like the right to life stood abrogated during Emergency) and the “JMM Bribery case” (where it was held that MPs who have received bribes are immune from prosecution).
Does Vodafone really deserve to be put in the same boat as these two other controversial judgements which are universally regarded as the worst judgements to have been delivered by the great Institution?
Verma was irked by the fact that Vodafone, though a 3-Judge judgement, bypassed the law laid down in McDowell, a 5-Judge Constitution Bench judgment, that one has to see the “substance” of the transaction and not just its “form”.
Verma pointed out that in formulating the “Look At, Not Look Through” doctrine, the Judges in Vodafone had done the “opposite” of what the Constitution Bench had laid down in McDowell that one had to “Look Through” the transaction to determine what the transaction really was.
Verma was also upset by the fact that the Vodafone ruling had sanctified “illegitimate tax avoidance by adopting a subterfuge“.
He expressed concern that the effect of benefiting a multi-billion dollar conglomerate is to cast a higher tax burden on the common man. “When an illegal tax avoidance is upheld, you cast a higher tax burden on the honest tax payer“, he emphasized.
Bishwajit Bhattacharyya also did not mince words in criticizing the Vodafone judgment. In his book, My Experience with the office of Additional Solicitor General of India, Bhattacharyya has given two arguments to contend why Vodafone is wrong. The first, he says, is that the Supreme Court is wrong in terming the transaction as “Foreign Direct Investment”.
He points out that Vodafone filed an application for approval with the Foreign Investment Promotion Board (“FIPB”) on 20.2.2007 which was granted on 7.5.2007. On the next day, Vodafone remitted $11 billion to Hutch, the funds travelling from the Cayman Islands to Hong Kong.
Bhattacharyya argues that when not a single dollar came into India, the transaction cannot be called “Foreign Direct Investment” but it is a “Foreign Outward Remittance” from India, arising out of Indian operations.
Bhattacharyya’s second argument is that the Supreme Court is wrong in stating that the Income-tax department had no “jurisdiction” to tax the transfer of the shares. He points out that if the FIPB had territorial jurisdiction over the transaction and the remittance that was made by Vodafone to Hutch, then how could it be said that the Income-tax department had no jurisdiction over the same transaction and remittance?
Anyway, whatever may be the merits or demerits of the verdict, the million, (nay, billion) dollar question now is whether Manmohan Singh will let Vodafone off the hook or not. My bet is that Vodafone will be allowed to escape scot free. The Shome Committee recommendations have set the stage for that. What’s your bet?