British telecom major Vodafone had acquired Honk Kong-based Hutchison Whampoa‘s stake in Indian telecom major, Hutchison Essar (famously known as Hutch) in 2007. The Rs 11,200 crore tax liability issue is based on this acquisition.
Hailing the Bombay High Court’s reprimand towards the I-T Department in the Vodafone tax issue, Rohan Shah, managing partner, ELP, says the revenue department will now have to rectify its harassing approach towards the telecom major.
Speaking to CNBC-TV18, Shah says the HC’s move to remand the case back to the assessing officer lays bare the fact that even the court believes the tax department was not taking the appropriate approach in the tax tussle.
British telecom major Vodafone had acquired Honk Kong-based Hutchison Whampoa’s stake in Indian telecom major, Hutchison Essar (famously known as Hutch) in 2007. The Rs 11,200 crore tax liability issue is based on this acquisition.
While the Supreme Court (SC) had ruled in Vodafone’s favour in 2012, the government later changed its views on the same, thereby attracting the retrospective tax claims on deals that were already done with.
There have been numerous conciliatory talks between the government and Vodafone, but no amicable understanding has been reached yet.
Below is the edited transcript of Shah’s interview to CNBC-TV18.
Q: The Bombay High Court seems to have remanded the case back to the assessing officer and accompanied that decision with some very stern comments for the Revenue Department that it is natural for Vodafone to feel harassed, that no government should visit this kind of misery on an assessee. What do you make of this decision?
A: I think this is a very positive decision after the Supreme Court judgement in Vodafone. Comments in terms of what the attitude of the Tax Department should be qua the assesses and in a way, an affirmation once again that the approach being taken by the Tax Department was not the appropriate one. So, even in terms of the remand the remand in that manner is not going to be completely open-ended, because the approach that had been taken till today is certainly not the approach they can readopt.
Q: But it does mean that they can continue to agitate that share premium must be taxed in the manner that they have done, so both with the demand on Vodafone as well as the demand of Shell or do you think that this kind of commentary from the Bombay High Court kills the Tax Department's effort to tax share premium?
A: The text of the judgement is not yet available, but the controversy was could you tax it, the argument being that it is capital receipt and you could not tax it. To the extent that they have said that the approach was not correct and that in fact amounted to harassment, even though there is a remand, I do no think the Tax Department will be able to adopt the same arguments or the same approach that they had before.
Q: Would this case have gone more strongly in favour of Vodafone had the Bombay High Court just knocked down this effort to tax share premium? So do you think that in some sense remanding it back to the assessing officer continues to be a slight negative or uncertainty issue for Vodafone and equally for Shell?
A: We have to see this in the background that the Supreme Court has consistently said that entertaining a writ petition at a point in time where there are alternate remedies is something that should be discouraged. I would not have expected them to come to an absolute finding on the tax position.
Q: I have some more comments coming in from the Bombay High Court. The Bombay High Court said, ‘we are not going into the merits. This appears to be a fit case to direct the Dispute Resolution Panel (DRP) to decide on chargeability on shortfall of premium’ That seems to be partially negative then?
A: Not negative. It is left open. There are the comments in terms of their not standing by the approach taken by the Tax Department. My sense here is it was only fair to expect them to remand. They could not have come to a final finding.
Given the nature of their observations I think the department will certainly be on their guard. You are not going to see something completely fancy and at the same point in time, I do not think they will pursue the line that they had before the matter is open for decision and therefore both the Tax Department and the assessee will obviously have an opportunity to put forth whatever arguments they have to sustain their own case.
Q: This does look like a bit of a negative. Couldn't the Bombay High Court just have said this is a ludicrous effort to try and tax what is the capital receipt and hence it should not proceed at all?
A: Not having the full judgement is a little jeopardous. What we are all reading is the summation of observation and the operative order in terms of the remand. We need to see what the rationale is. It has sent it back for a remand which is only logical and we need to see the tax as to whether even on the approach and the technicalities they have come down against the department. That we do not have right now.LIVE NOW... Video series on How to Double Your Monthly Income... where Rahul Shah, Ex-Swiss Investment Banker and one of India's leading experts on wealth building, reveals his secret strategies for the first time ever. Register here to watch it for FREE.