Vodafone stares at fresh battle with I-T dept

The news that tax department is set to challenge the Bombay High Court judgement on Vodafone’s RS 3,200 crore transfer pricing case is just the latest setback for the British telecom major’s long-running dispute with the taxman.

This dispute is different from the Rs 20,000 crore retrospective tax dispute that the company has with the Indian government. Last month, the company moved to the International Court Of Justice in The Hague, Netherlands seeking the appointment of a third arbitrator for the retrospective dispute.

In a bid to dispel the impression of a regressive tax regime and push ease of doing business, Finance Minister Arun Jaitley has said on a number of occasions that the government will not actively pursue pending retrospective taxation cases.

A similar commitment, however, has not been given for transfer pricing cases, though government officials have said that decisions by courts will not be challenged. That is why th tax department’s decision to challenge the Bombay High Court’s judgement is surprising.

This transfer pricing tax case comprises of two separate transactions — sale of Vodafone’s call centre business to Hutchison Whampoa Properties and assignment of call options to Vodafone International Holdings BV in 2007-08.

The tax department had made a Rs 8,500 crore transfer pricing adjustment in the case that was upheld by the Income Tax Appellate Tribunal. Vodafone had however argued that there was no assignment of call options and hence there wasn’t an international transaction.

The Bombay High Court had ruled this case in Vodafone’s favour.

In the Union Budget 2016-17, Jaitley had offered to settle past cases arising out of the infamous retrospective amendment of income tax laws, without naming any company. The retrospective tax law, which had been deferred for three years, kicks in from the next fiscal.

“I propose a one-time scheme of dispute resolution for them (companies embroiled in retrospective cases), in which, subject to their agreeing to withdraw any pending case lying in any Court or Tribunal or any proceeding for arbitration, mediation etc. under BIPA, they can settle the case by paying only the tax arrears in which case liability of the interest and penalty shall be waived,” Jaitley had said.

It was clear that Vodafone had rejected this offer when they moved to the International Court of Justice.