Soft Stand on Voda Calms Investors' Nerves

Govt not to appeal against Bombay High Court ruling that UK-based mobile service provider was not liable to pay Rs 3,200 cr tax in transfer pricing case; industry hails decision saying it will uplift the positive sentiments of the domestic industry further; Vodafone welcomes stand

Published: 29th January 2015 05:59 AM  |   Last Updated: 29th January 2015 05:59 AM   |  A+A-

NEW DELHI: In a significant decision that will send positive signals to the investor community in India and abroad the Government on Wednesday decided not to appeal against a Bombay High Court ruling that Vodafone was not liable to pay tax demand of Rs 3,200 crore in a transfer pricing case.

Telecom Minister Ravi Shankar Prasad said the decision was taken to avoid “fruitless litigation” and allay investors’ concerns on tax issues.”

The Cabinet has decided to accept the Bombay High Court order of October 10, 2014, in the case of Vodafone India Services Pvt Ltd.

It also decided “to accept orders of Courts/ITAT/DRP in cases of other taxpayers where similar transfer pricing (TP) adjustments have been made and the Courts/ ITAT/ DRP have decided/decide in favour of the taxpayer”.

After a meeting of the Union Cabinet, Prasad told reporters that  “the government wants to convey a clear and positive message to investors globally that it would be “fair, transparent and within the four corners of law”.

Describing the decision as a “major correction of a tax matter which has adversely affected investor sentiment,” the government said this will set at rest the uncertainty prevailing in the minds of foreign investors in respect of transfer pricing cases.

The decision would have implications for MNCs especially Dutch oil major Shell which had got a favourable ruling in the transfer pricing case from the Bombay High Court.

The decision was hailed by apex industry chamber Ficci. Its secretary general A Didar Singh said, “This decision will also help in uplifting the positive sentiments of the domestic industry further.”

Tax.JPGOn Monday, while addressing top US CEOs, Prime Minister Narendra Modi, in presence of the US President Barack Obama, assured the US and Indian business czars that “You will find a tax regime that is predictable and competitive. We have removed some of the excesses of the past. We will now soon address the remaining uncertainties.”

Modi’s remarks were in an obvious reference to the retrospective tax that had kept investors away from India in the last three years,

Attorney General of India Mukul Rohatgi had dissuaded the government from filing an appeal in the Supreme Court against Vodafone.

Rohatgi had advised the income-tax department to accept the judgment of the Bombay High Court in the Vodafone case.

The High Court in its October 10, 2014 order had given a big relief to the UK-based mobile service provider by ruling that it is not liable to pay an income-tax demand of Rs 3,200 crore in a case relating to transfer pricing. The transaction took place in financial year 2010.

Transfer pricing is the practice of arm’s length pricing for transactions between group companies based in different countries to ensure a fair price — one that would have been charged to an unrelated party — is levied.

The Bombay High Court had in its order said, “In our opinion there is no taxable income on share premium received on the issue of shares.”

A Vodafone spokesperson said, “We welcome the Indian government’s decision not to appeal the Bombay High Court ruling. Stability and predictability in tax matters are important for long-term investors such as Vodafone.”

(with agency inputs)

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