Vodafone may get big relief
Parthasarathi Shome committee in its draft report to the finance ministry has recommended that tax laws should be applied prospectively and not retrospectively.
The committee said that in case government decides to tax retrospectively, then no penalty and interest should be imposed on such companies.
This view would benefit companies such as Vodafone, as it could waive off `7,900 crore penalty on them.
The committee had said that prospective applicability of the tax law would better reflect the principles of equity and probity in the formulation and implementation of commonly recognised taxation principles.
The income-tax department had raised a `11,000 crore tax demand from Vodafone for its acquisition of Hutchison stake in Hutchison-Essar in 2007 through a deal in Cayman islands.
But the Supreme Court struck down the tax claim. Following the Supreme Court’s judgement, the government in the Finance Bill, 2012 had amendment Income-tax Act, 1961, with retrospective effect to bring in tax net overseas mergers and acquisitions involving Indian assets.
However, this resulted in an out cry from the international investors, which forced government to ask Shome panel to look into the issue.
The committee concluded that retrospective application of tax law should occur in exceptional or rarest of rare cases. It should be applied to correct apparent mistakes /anomalies in the statute and to apply to matters that are genuinely clarificatory in nature.
“Or it must appear to protect the tax base from highly abusive tax planning schemes that have the main purpose of avoiding tax, without economic substance, but not to ‘expand’ the tax base,” said the committee in its report.
The panel said retrospective application of a tax law should occur only after exhaustive and transparent consultations with stakeholders who would be affected.
The committee said that government could apply the tax provisions only to the taxpayer who earned capital gains from indirect transfer.
It said that those transfer of shares be taxed that results in participation in ownership, capital, control or management. All other types including mere economic interest should not be contemplated for taxation.
“A capital asset being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be situated in India, if the share or interest derives, directly or indirectly, its value from the assets located in India being more than 50 per cent of the global assets of such company or entity,” said the Shome committee report.
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