The Supreme Court will hear the Centre's plea for review of the Vodafone judgment on Tuesday at a time when the UPA government has proposed to amend the Income Tax Act to levy capital gains tax on domestic asset acquisition through merger and acquisition deals involving overseas companies.
The petition seeking review of the January 20 judgment quashing the I-T department's Rs 11,000 crore capital gains tax demand on Vodafone is listed in-chamber before a bench of Chief Justice S H Kapadia and Justices K S Radhakrishnan and Swatanter Kumar.
Under normal practice, the in-chamber scrutiny of review petitions by judges takes place without the presence of lawyers from any side. Majority of the review petitions are dismissed but there have been recent examples where the court decided to hear pleas from lawyers by listing the plea for reconsideration in open court.
The hard-hitting 100-page review petition, filed jointly by the Centre and the I-T department, has listed 121 grounds, each pointing to an error in judgment. The government said it was surprised by the SC's decision to give relief to Vodafone on the ground that the offshore transaction was a structured foreign direct investment into the country when not a single penny had come as investment into India through the deal.
Smarting under the Vodafone ruling, finance minister Pranab Mukherjee in his budget proposals had indicated major amendments in direct tax laws with retrospective effect to allow the government to tax income "accruing or arising directly or indirectly through the transfer of capital asset situated in India".
The Finance Bill has proposed that notwithstanding any judgment from the apex court or any tribunal, the retrospective amendments would enable the government to keep alive all its tax demands and not return anything which it had collected as levy pursuant to the proposed change in law.
The two budget proposals on tax front are aimed at mopping up Rs 35-40,000 crore, which is now locked up in litigation between government and companies. As a result, investors both domestic and foreign will be closely tracking the outcome of the apex court's decision on the Vodafone review petition.
The review petition said, "The judgment has far-reaching consequences as much as it undermines the existing and regulatory framework that requires approvals from competent authorities in India even for transactions routed outside India through tax havens. The apex court failed to appreciate the consequences of its judgment on the steps taken by the government of India to promote tax transparency and fight tax evasion.
"The apex court failed to appreciate that the instant case did not involve any inflow of monies into India because the sale consideration was admittedly paid outside India by VIH, a British Virgin Island company, to HTIL. Therefore, it was not a case of FDI into India."
Vodafone had taken note of the review plea and said it would be "evaluated by the same bench that ruled on the Vodafone-Hutchison case" and that the company had no further comments to make at this stage. On January 20, the Supreme Court clearly and unambiguously ruled that there was no tax to pay on the Vodafone-Hutchison transaction, it had said.
Justice Kapadia had said in the judgment that the transaction was a "bona fide structured FDI investment into India, which fell outside India's territorial tax jurisdiction... consequently, the Indian tax authority had no territorial tax jurisdiction to tax the said offshore transaction". (Times of India)
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