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Twist in the Vodafone Tale!

Published on Mon, Oct 04,2010 | 13:20, Updated at Mon, Oct 04 at 17:36Source : CNBC-TV18 |   Watch Video :

There is a curious twist in the Vodafone tale. Well, at least to my untrained eye, it seems curious. Remember the Bombay High Court ruled that the Vodafone-Hutch USD 11 billion dollar deal does have some nexus to India and hence part of it is taxable - the apportionment of which was left to the tax department. As expected, Vodafone appealed the jurisdiction issue to the Supreme Court. But not only did the apex court refuse to stay the Bombay High Courtís judgment against Vodafone, it also asked the taxman to quantify Vodafoneís liability within 4 weeks. Why did the Supreme Court jump to a tax demand and hence the apportionment issue, before deciding on the core issue of 'jurisdiction. Was it part of due process or in the interest of speed or because it also believes there is nexus? Isha Dalal finds out.

Why did the Apex Court insist that Vodafoneís tax liability be quantified at this stage, when the jurisdiction issue has yet to be settled?

SR Wadhwa, Former Chief Commissioner, Income Tax Department
Look at the magnitude of the amount involvedó12,000 crores. Suppose Supreme Court agrees with the Bombay High Courtís view, then in order to protect the interests of revenue, if some money is deposited by Vodafone, I think it is perfectly legitimate.

Porus Kaka, Senior Advocate

The normal practice for any court would be that if you want us to intervene as a matter of stay then the court would normally want a deposit. The High Court has decided rightly or wrongly against Vodafone on the question of jurisdiction, so the next consequence would certainly be a calculation of the amount, so the Supreme Court perhaps correctly says that if you want us to stay everything and want a blanket stay then we require some amount to be deposited, as harsh as it may seem.

Now that a tax demand is being raised at this stage, will further proceedings be expedited?
Porus Kaka, Senior Advocate

Frankly from an order of the ITO, you donít go straight to the Supreme Court and the Supreme Court neither has the wherewithal nor has the time to look into the calculations and arithmetics, so therefore I see perhaps parallel lines of litigation, there will be overlapping of arguments but I think there are separate arguments on apportionment and calculation which may go through regular authorities and a significant argument on jurisdiction which will undoubtedly remain with the Supreme Court.

SR Wadhwa, Former Chief Commissioner, Income Tax Department

Once the jurisdiction issue is decided, the quantum may have to be decided in the normal course of appeals and all that. So now the most important issue is whether the tax authorities have jurisdiction to levy tax on this transaction.

NC Hegde, Partner, Deloitte

They are going to hear arguments by Vodafone on the merits of the case including the fact that this time the order may also address the issue of whether the amendment made to Section 201 was prospective or retrospective. So that part, the apportionment all that will be in the order passed by the tax departmentó so it is interesting to see whether the Supreme Court does take up those issues or confines itself to the jurisdiction aspect.

On this issue, does the apex courtís directive mean that it also believes that there is nexus?

SR Wadhwa, Former Chief Commissioner, Income Tax Department

I donít think that the SC has desired that the tax be determined is indicative of having made up their minds. Not at all. I think the very fact that they are admitting the appeal against the decision the Bombay High Court shows that the matters are very contentious and substantial questions of law are involved and need the consideration of the apex court.

NC Hegde, Partner, Deloitte

The attitude of the Supreme Court may simply stem from the fact that they are sympathetic towards the government in saying that a portion of the tax demand needs to be paid by the taxpayer before the issue is actually addressed. So the fact that they havenít stayed the decision of the Bombay high court may lead to a belief that they believe that there is some merit in the tax departmentís claim.

Porus Kaka, Senior Advocate

No, I donít agree that the Supreme Court in any way has impliedly approved of the Bombay High Court, this is only a question of whether you want a blanket stay of order of a lower court and these are normal terms that a superior court will put through. Now as I see there is a significant possibility of parallel lines of litigation, one being on jurisdiction in the Supreme Court and the other being on the calculation and apportionment through the regular tax proceeding.


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