As Vodafone's tax cloud lifts, will pending cases triumph?

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In a landmark ruling, the Supreme Court's ruling favoured India's second largest telecom operator with regards to overseas transactions.

The Supreme Court today set aside the Bombay High Court judgment asking Vodafone International Holdings to pay Rs 11,000 crore to the Income Tax department, on the ground that Indian authorities do not have jurisdiction on an overseas transaction.

Pranav Sayta of E&Y says the judgement is clear cut - the rule of law will prevail. He also believes that this verdict can help the other pending cases get speedy rulings. "This judgement will bring in more clarity in M&A transactions," he said.

Shefali Goradia of BMR Advisors also agrees that this judgement will assist new doctrines. She also acknowledges that the absence of the Direct Tax Code is challenging for the Income Tax department.

Below is an edited transcript of their interview on CNBC-TV18. Watch the accompanying videos for more.

Q: What is the big message to the government that the Supreme Court has sent out? If you look at what the Supreme Court order it says doctrines like look through are matters of policy. If the government wants to actually get into that, they need to come out with specific legislations which is perhaps what we could see once the Direct Tax Code comes into effect?

Goradia: The key message to the government seems to be that if they want to apply the look through principles, they must bring that specifically in the statute and the tax treaties. If the tax treaties don't have the limitation of benefits then they cannot look through those entities and lift the corporate veil to look at the beneficial owners. So, it's a very strong order giving a very strong message to the government to look into the policy reforms and bring in certainty in the tax policies.

Q: As far as Vodafone is concerned, this is a landmark judgment that will set a precedent for other pending matters as well. There are five other pending matters at this point in time, where all of those will be discussed and deliberated as per the merits of those particular cases. But what sort of a precedent and what is the larger implication of this particular judgment?

Sayta: There are very far-reaching implications really of this judgment because it very unequivocally and clearly dictates that the rule of law will prevail that the letter of law will be respected by and large. It goes on to say that this is not a case of a sham transaction. This is a bona fide structure from 1994. It also clearly suggests that the transfer really was through a Cayman Island company called CGP and not really an asset located in India.

So the principles that it has respected is that the corporate entity overseas has to be respected. We cannot pierce the corporate veil unless it is a sham and this is no case of a sham. I would feel the principles that have been enunciated in this judgment are going to be extremely helpful and useful. For all practical purposes I would feel that there is a very strong chance that the rest of the cases relying on this will now see success.

Watch the accompanying videos for the entire interview...

Also watch the videos of Daksha Baxi, the executive director Of Khaitan And Company's interview on CNBC-TV18.