Vodafone case opens the gate to non-adversarial tax regime

Newsroom24x7 Analysis

vodafoneThe Bombay High Court’s order in the transfer pricing case linked with British Telecom giant Vodafone has helped Government of India reiterate commitment for a non-adversarial tax regime and leave a positive impact on foreign investors.

Following the High Court ruling in the Vodafone case, the Union Cabinet led by Prime Minister Modi, was prompt in building investors’ confidence by deciding not to go in appeal. After the Cabinet took this decision, Telecom Minister Ravi Shankar Prasad told media-persons that investors’ confidence had been shaken by an extremely “fluctuating tax policy”.

A Government statement said: “The Cabinet came to this view as this is a transaction on the capital account and there is no income to be chargeable to tax. So applying any pricing formula is irrelevant.”

Even Attorney General Mukul Rohatgi went on record in this connection saying: “I looked at the Bombay High Court ruling and agreed that under the I-T Act, as it stands, the transaction was not taxable in India. I took a conscious decision not to file an appeal.”

The Foreign Tax and Tax Research Division of Central Board of Direct Taxes also communicated this weekend to all Principal Chief Commissioners Income Tax, Directors General Income Tax and CCsIT, DsGIT, that CBDT has accepted the decision of the High Court of Bombay in the case of Vodafone India Services Private limited for assessment year 2009-10 in response to writ petition no. 871102014. The court has held that the premium on shore issue was on account of the capital account transaction and does not give rise to income and, hence, not liable to transfer pricing adjustment, the CBDT has said and without leaving anything to ambiguity issued instructions down that line, even to CsIT (Appeals), that the ratio decided in the judgment must be adhered to by the field officers in all cases where this issue is involved.