Shome relief for Vodafone in tax case report

Vodafone

A high-level expert panel set up by the goverment has said that retrospective amendments in tax laws targeting overseas indirect transfer of assets taxable in India should be reversed, and be made applicable prospectively.

The recommendation could provide major relief to British telecom major Vodafone in its running dispute with the income-tax department.

The Parthasarathi Shome committee, appointed by Prime Minister Manmohan Singh to address issues specifically related to the taxation of non-resident transfer of assets where the underlying asset is in India, has sought to largely overturn the retrospective amendment of Section 9 carried out in this year's Budget, though which deals such as the Vodafone-Hutchison deal of 2007 were sought to be brought in the tax net.

Apart from favouring "prospective" over "retrospective" application of the provision in Budget 2012-13, which had threatened to derail investment inflows into the country and led to a substantial fall in investor sentiment, the panel has said that no interest or penalty should be levied if the tax is enforced retrospectively.

The panel has stressed that retrospective amendments in tax laws should be carried out only in the "rarest of rare cases", and only after "exhaustive and transparent" consultations.

Amendments to Section 9 should not apply retrospectively, the panel has said, arguing that the changes are not "clarificatory", and would have substantial impact in terms of widening the tax base. Earlier, while defending the changes in the Budget, the government had argued that the changes were merely "clarificatory" in nature and not "substantive".

However, should the government go ahead with the amendments, no penalty or interest should be levied on the taxpayer in case of tax default, the panel has said.

The committee has brought cheer for non-resident investors using participatory notes (P-Notes) to invest in foreign institutional investors (FIIs) in the country. It has recommended that such investors should be exempt from Section 9 (1)(i), which deals with transfers of underlying assets in India, directly or indirectly.

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