Tax practitioners today widely welcomed the Supreme Court's landmark judgment in the Vodafone International case, stating that it clearly showed how the Indian judiciary upheld the interpretation of law on legal considerations alone.
This decision could pave the way for resolving pending tax disputes (such as Sanofi-Aventis, AT&T-Tata Group in Idea Cellular) in favour of foreign investors, especially where bona fide and international business structuring is done for legitimate commercial reasons.
This judgment also provides another life of legitimacy for tax planning in India as it affirms the principles of the ‘Azadi Bachao' ruling of the apex court, they said. In the ‘Azadi Bachao' case, the SC had upheld the validity of tax planning and had said that a tax residency certificate from Mauritius authorities was sufficient to avail of Indo-Mauritius tax treaty benefits.
While the SC ruling in Vodafone is clearly a setback for tax authorities looking to garner a bigger share of revenues, the euphoria for taxpayers (non-residents) could be short-lived. This is because Government may look to bring in amendments to income-tax law in the upcoming Budget to bring indirect transfers (outside India) with underlying Indian assets under the tax net, many tax experts said.
The proposed Direct Taxes Code already has a specific proposal to tax the income arising to non-resident from any offshore transaction involving underlying Indian asset.
“The judgment is progressive. (It) emphasises the need of tax laws being certain and stable and gives the international and business community renewed sense of confidence and optimism,” Mr Aseem Chawla, Partner, Amarchand & Mangaldas, told Business Line .
On withholding tax, “it affirms the view that where there is no income chargeable to tax, no obligation to withhold tax would arise The given transaction was an offshore transaction between two non-residents and, therefore, Section 195 would not get attracted. The offshore structure was not set up with intent to evade taxes,” he added.
Ms Neeru Ahuja, Partner, Deloitte Haskins & Sells, said this judgment would restore faith of many foreign investors in India amidst the current environment of uncertainty and gloom. The Supreme Court has lived up to the image of the best in class judicial standards in the world, she said.