The controversy relating to the taxability of the capital gains arising to Hutchison Whampoa out of the $11 billion acquisition by Vodafone has returned to haunt Vodafone. It may be recalled that the Supreme Court decided the issue in favour of Vodafone (341 ITR 1). However, a controversial retrospective amendment to section 9 of the Income-tax Act, 1961 sought to torpedo the judgement of the Supreme Court. Thereafter, the new Government led by Prime Minister Narendra Modi and Finance Minister Arun Jaitley declared that they are opposed to the concept of retrospective legislation and vowed to resolve the controversy. The amount owed by Vodafone on the basis of the retrospective legislation is Rs. 14,200 crore.
According to Mint, Anil Sant, Deputy Commissioner of Income-tax, has sent Vodafone a notice dated 4th February 2016 demanding that the said amount of Rs. 14,200 be paid. The notice makes it clear that the arrears can be recovered by attaching the assets of the non-resident assessee, Mint reported.
Obviously, the move has not go down well with Vodafone. It released a statement pointing out that “The Indian government stated in 2014 that existing tax disputes, including ours, would be resolved through existing judicial process. In a week when Prime Minister Modi is promoting a tax-friendly environment for foreign investors this seems a complete disconnect between government and the Tax Department.”
The commentary from foreign observers has also been scathing. Tim Worstall wrote a scathing criticism in the Forbes:
“Just as the Modi government is trying to launch the Make in India campaign we’ve got the tax department trying, again, a tactic which will have foreign investors running for the hills. The government simply has to rein in that tax department, tell it that it lost the case in the Supreme Court and that that’s that. Because if there’s one thing that is going to stop foreign investment it’s the idea that the bureaucracy does not feel itself burdened by having to obey the law.
What’s worse in this case is that it is already in front of an arbitration tribunal: but the tax department is threatening to confiscate Vodafone’s local assets before that ruling is issued, before the case is even fully heard. This, on top of the previous Supreme Court ruling, just makes a mockery of the aim of having foreign investment into production and manufacturing in India.”
So, it looks, at least from the perspective of foreign investors, that the dreaded “tax terrorism” which was prevalent during the regime of former Finance Ministers Pranab Mukherjee and P. Chidamabaram is still very much a part of the culture even in the present regime.