Breakthrough in Voda-govt stalemate close: Sources

Finally a breakthrough is in sight in the tax stalemate between Vodafone and the Indian government. CNBC-TV18's Aakansha Sethi's reports, quoting sources, says that a settlement is likely between both parties. The settlement, if it goes through, may be in form of a penalty or interest waiver.

The likely terms that would be part of the settlement will depend on PC Chidambaram, the new finance minister, who has taken over on Wednesday. Government and Vodafone sources have indicated that both the company and the income tax department are keen on a settlement. The government does not want arbitration as it believes the process will be very long and cumbersome.
This is call for a settlement will be determined by the government’s reply to Vodafone's BIPA (Bilateral Investment Protection Agreement) notice. On the May 2, Vodafone had sent the government a notice invoking the bilateral investment treaty with The Netherlands which stated that the government should put it in writing that there was no tax liability.
The finance ministry replied that Vodafone was liable to be taxed and will have to pay the capital gains tax. This has now been sent to the Attorney General and his opinion on the dispute will be key in determining the government’s further strategy.
The Attorney General vetted the draft retrospective amendment of Section 9 and had been part of the team that had worked on the retrospective amendment. The government’s waiver of penalty and interest payable by Vodafone, comes to about Rs 11,000 crore.
The government has that prerogative thanks to provisions in income tax law under Section 119 2B of the Income Tax Act and the CBDT has powers to waive off the interest amount.
The penalty can be waived off by approaching either the settlement commission or the department of appeals. According to sources, one option in settling the dispute with Vodafone was to have them pay only Rs 8,000 crore of the tax liability.