Vodafone tax case: Income-Tax Department Files Review Petition in Apex Court of India

In accordance to an Article in Economic Times, the Income-Tax Department has filed a review petition in the Supreme Court asking it to reconsider its verdict dismissing the government's $2.2-billion tax claim on telecom company Vodafone, but the UK-based group appeared unfazed.

The department has sought the review on the grounds the judgement suffered from errors, failed to consider its submissions, and that certain provisions in the income-tax law had not been correctly interpreted.

The Governmet of India through Income-Tax Department has filed 100-page review petition wherein it has listed 121 grounds on which it considers earlier judgment in favour of Vodafone as an error in judgment. The review petition is for reconsideration of its verdict dismissing the government’s $2.2-billion tax claim on telecom company Vodafone which had been confirmed by Mumbai High Court verdict of 2008 that had upheld the tax authorities’ decision to levy tax on Vodafone’s $11-billion deal to acquire a controlling stake in the erstwhile Hutchison-Essar from Hong Kong-based conglomerate Hutchison Whampoa.

Following few issues raised by the department:

1. 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.
2. The SC ruling may have the impact of legitimizing tax haven structures, even for round-tripping purposes.
3. The reliance placed by the court on the provisions of DTC Bill 2009, is not correct as the same was merely a ‘public discussion draft.’
4. 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.
5.  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.
6. Supreme Court own ruling in McDowell’s case which distinguhsed between tax avoidance & tax planning has not been taken into account while delivering justice.