Will CBDT circular bring relief to Vodafone?

Dinesh Kanabar, chairman –tax, KPMG says that CBDT circular will explain how a completed assessment will not be reopened under a retrospective amendment.

“In the case of Vodafone the assessment order is already been finalised because there is a Supreme Court judgment which finalises assessment in their case. The question therefore is, that assuming that the retrospective amendment is valid in law, what does it do to Vodafone? I don’t have an answer but I do think there is something to argue out there to say that such a retrospective amendment ought not to apply to Vodafone,” said Kanabaar. Below is the edited transcript of his interview to CNBC-YV18. Also watch the accompanying video. Q: Apart from Parliament powers the FM spoke about Vodafone in specific on the floor of the House. The FM repeated the argument how Vodafone transaction which had huge assets in India, was done overseas, no capital gains was paid by Hutch. What is the road ahead after the FM making both his mood and intent very clear at this stage? A: One thing is very clear from the finance minister speech that he believes that though the Supreme Court have the right to interpret the law, the Parliament has the power to make and legislate the law. The question really which comes up is, yesterday, when the finance minister was presented in the House a statement on some of the changes which he was proposing in the finance bill, he mentioned that qua the assessment orders which have been already finalised will have no impact of the retrospective amendment, and the retrospective amendment will not be used to reopen the matters which are already over. In the case of Vodafone the Supreme Court has already closed the matter – qua Vodafone. If one has to go by what the finance minister stated in the floor of the Parliament and I have the statement before me, he categorically stated that once an assessment order is finalised it will not be reopened. Q: You mean that Vodafone is not covered because the finance minister today said that assessments that are closed will not be reopened because of the retrospective amendment. Is this a slender hope because on the side line what we are picking from the finance ministry is that a fresh note or assessment is going to be issued likely by the 25 May? A: The finance minister stated that he has directed the CBDT to come out with a circular. This circular will explain how a completed assessment will not be reopened under a retrospective amendment. One needs to wait for that circular because that is not contain in the law as has been put before the House of the Parliament. I am just going today by the statement and I really don’t have an answer probably, a council maybe a better person to answer. In the case of Vodafone the assessment order is already been finalized because there is a Supreme Court judgment which finalizes assessment in their case. The question therefore is, that assuming that the retrospective amendment is valid in law, what does it do to Vodafone? I don’t have an answer but I do think there is something to argue out there to say that such a retrospective amendment ought not to apply to Vodafone. Q: Will Vodafone now move or needs to move before relevant authorities to seek clarity post finance bill becoming law and possibly at that stage get to know that the finance minister has actually gone soft on their case? A: I have no authority to comment on Vodafone action. Depending on the wordings of the circular which the CBDT will come out, it potentially could lie in the mouth of Vodafone to say that once a matter is closed - in this case, it was not only that the Supreme Court passed a judgment, but it was subjected to a review petition and the review petition also was disposed off by the Supreme Court before the introduction of finance bill. Means that on the date on which the finance bill was introduced in the Houses of the Parliament the whole matter qua Vodafone was over. So, one is the issue and the retrospective amendment and its impact on the issue per se. Second is, what it does to a specific assessee whose matter is already completed by the Supreme Court and I would like to believe that there is something to argue there. Q: The finance ministers comments about capital gains assets lying in India, talk about the United Kingdom retrospective amendment, some bit of emotion coming through on that, what is you view on that? A: Assume a person is a resident in India and he sells an asset in India, would he not be obliged to capital gains tax? The answer is yes. Therefore, why should a person who is a non-resident be any different and how can he escape capital gains tax. To answer a question in equity, a person who makes capital gains having regard to the value of assets in India ought to pay taxes in India that’s a question in equity. The question is that tax laws and equity are strangers. For example, the government may exempt income on infrastructure bonds, agricultural income, whatever. So, either the law charges tax or the law does not charge tax. There is no equity in law. The question really is, did the law as it stand really permits charge of tax on such a transaction.