Centre seeks review of Vodafone verdict

In a rare move, the government on Friday filed a review petition against the Supreme Court (SC) verdict in the Vodafone tax case. It, however, faces a daunting task as the SC has very rarely reviewed its rulings.

Terming the judgment as one that ‘suffers’ from many errors apparent on record and which failed to consider the case submitted by the revenue department,  the 100-page petition, reviewed by DNA, criticises  the judgment on multiple counts, especially the Supreme Court’s emphasis on the foreign direct investment (FDI) aspect, the court’s views on the Ramsay Doctrine, the Azadi Bachao vs McDowell’s case, the interpretation of Section 9, and the reliance on a Direct Taxes Code (DTC) provision which has not been enacted and which, the government argues, is only an “exemption” provision and not meant to charge offshore transfers, and also the court’s remarks about the taxes paid by Vodafone Essar in India.

Through the petition, it is contended that no investment or inflow of money into India took place at all, since the sale consideration was paid outside India by one non-resident to another. Hence, FDI had no role to play in the case. The review petition cautions that the SC ruling may have the impact of legitimising tax haven structures, even for round-tripping purposes.

Objecting strongly to the reliance placed by the court on the provisions of DTC Bill 2009, the petition argues that the same was merely a ‘public discussion draft.’ Further, the express use “indirect transfer of capital asset situated in India” was not incorporated in the DTC Bill 2010 and the provisions of Section 5(1) of DTC 2010 are similar to Section 9(1) of the existing Act.
The petition states the DTC bill provision on offshore transfers is merely an exemption provision and not a charging provision meant to tax such transactions.

The government has also taken strong exception to the Supreme Court ruling’s effect of ignoring the McDowell’s case, which had frowned on tax avoidance schemes.

The review petition is listed to be heard on February 27.
Last month, the SC had ruled in favour of Vodafone in the prolonged dispute over its deal to buy Hutchison Telecommunication International Ltd’s stake in its Indian mobile services operations.

Vodafone had in February 2007 acquired 67% direct and indirect stake in Hutchison Essar Ltd from Hutchison Telecommunication for $11.1 billion.

The tax department later demanded `11,200 crore as capital gains tax from Vodafone on this overseas deal for failing to deduct tax at source from gains that went to Hutchison Telecommunication.
Setting aside the Bombay High Court ruling, the apex court had asked the income tax department to refund within two months, along with 4% interest, the `2,500 crore that the London-headquartered company paid to the department during the course of the court proceedings.

Commenting on the review petition, Vodafone India said, “On 20 January, the Supreme Court clearly and unambiguously ruled that there was no tax to pay on the Vodafone-Hutchison transaction.”
“Vodafone notes the filing of the tax authority’s review petition, which will be evaluated by the same bench that ruled on the Vodafone-Hutchison case, and has no further comment to make at this stage,” it added. With NW18 inputs Giri and Dani are with taxsutra.com