"The apex court by its Jan 20, 2012 verdict had overturned the 2008 Bombay High Court verdict upholding the tax demand, ruling the the deals were not taxable in India as they were entered offshore."
New Delhi, June 26 - The Supreme Court will July 1 hear a PIL seeking directions to the government to discharge its statutory obligation by recovering Rs.20,000 crore tax dues from telecom giant Vodafone.
A bench of Justice Vikramajit Sen and Justice Shiva Kriti Singh directed the listing of the matter July 1 after petitioner, senior counsel Bishwajit Bhattacharyya, mentioned the PIL urging the court to direct the government and the Central Board of Direct Taxes (CBDT) to comply with rule of law while administering the Income Tax Act, 1961, impartially, even-handedly, without fear or favour.
Bhattacharyya has also sought directions to restrain the government from proceeding with arbitration under India-Netherlands Bilateral Investment Protection Agreement (BIPA).
The PIL said that Income Tax Act does not recognizes conciliation as a dispute settlement mechanism and only provides for an appeal against its tax notices.
It further said that direct tax issue under the Income Tax Act could not be brought within the ambit of BIPA. It is a settled law that the treaty obligations (between two sovereign countries have to be in harmony with the (prevailing) domestic legislations and cannot be in conflict with them, the PIL said.
The government has named Justice R.C. Lohati who was Chief Justice of India from June 2004 to November 2005 as arbitrator in the tax dispute. The government had introduced the retrospective tax by its 2012-13 amendment to Income Tax Act, 1961, through the Finance Bill (Budget).
The PIL said that the Income Tax Act, 1961, is self contained and if Vodafone was aggrieved by the introduction of retrospective tax, then the course open to it was either to file an appeal or challenge the amended law - which it did not exercise.
Despite a clear liability to pay the tax, Vodafone has not paid the tax for last 27 months, while the government as well has not shown any manifest inclination to collect the same despite a clear obligation to do so, it added.
Pointing to the way the government have shied away from its statutory obligation to recover tax dues, the PIL referred to Feb 18 statement of the then finance minister P. Chidambram wherein he had said that it was upto the revenue department to enforce the Rs.20,000 crore tax notice on the telecom giant.
The PIL said that rule of law is a basic immutable feature of Indian constitution and by not enforcing the tax notice on Vodafone, both the government and CBDT have flagrantly disregarded it.
It contended that the government had sat over the tax demand at a time when the fiscal situation in the country was a matter of concern.
The tax dispute between Indian tax authorities and Vodafone is rooted in 2007 acquisition by Netherlands-based Vodafone International Holdings BV of the entire share capital of CGP Investments (Holdings) Ltd. of the Cayman Islands which in turn gave it the control of its Indian assets - Hutchison Essar Limited.
The tax authorities had contended that the net result of Vodafone International Holdings BV acquiring the entire share capital of CGP Investments (Holdings) Ltd was that the ownership of HEL also changed and thus it attracted Indian tax net.
The apex court by its Jan 20, 2012 verdict had overturned the 2008 Bombay High Court verdict upholding the tax demand, ruling the the deals were not taxable in India as they were entered offshore.
We hold that the Offshore Transaction herein is a bona fide structured FDI investment into India which fell outside India's territorial tax jurisdiction, hence not taxable, said the apex court in its verdict on Vodafone's appeal contending that India could not impose taxes because the transaction was made between non-Indian companies outside the country.