The Bombay High Court verdict in the Vodafone share valuation controversy is a “mixed bag” and only a partial relief for the company, say income tax experts.
Without deciding on the merits, the Bombay High Court on Friday dismissed the writ petition filed by Vodafone India (Vodafone India Services Pvt Ltd).
The Bombay High Court granted partial relief to Vodafone by remanding the share valuation controversy to the dispute resolution panel.
The dismissal of writ petition – without going into merits — is a clear indication that the ‘theory of alternative remedy’ has been respected and upheld by the Bombay High Court, said Sunil Jain, Partner, J. Sagar Associates, a law firm.
Simply put, the Bombay High Court is saying that in case you (aggrieved party) have availed alternate remedy, then there is no case for filing a writ. However, the Court commented that Vodafone has cause to feel harassed by the tax authorities.
The Supreme Court has time and again re-iterated that High Courts should use their writ jurisdiction rather sparingly and not before all other legal remedies have been duly and timely exercised by the petitioner.
The said principle has been adhered to by the Bombay High Court in the instant case, Jain added.
Amit Maheshwari, Partner, Ashok Maheshwary & Associates, a chartered accountancy firm, said the Bombay High Court has left it open to the petitioner to come to Court if they are unhappy with the decision of the DRP.
In September, the Bombay High Court had dismissed another writ petition of Vodafone (Rs 8,500 crore transfer pricing adjustment) on similar grounds (need to exhaust all alternate remedies)
WHAT IS THE issue?
The main controversy in Vodafone, Shell matters is that the Income-Tax Department feels that there has been an undervaluation of shares issued by an Indian company of a multinational group to their parent or associates within the network.
The Income-Tax Department contends that in such a case of an undervaluation, there is income taxable in the hands of the Indian company (interest income on the deemed loan given to parent).
But remanding the matter to DRP without deciding on the merits will keep the sword of uncertainty hanging on the taxpayers and several others waiting in the wings for these two controversies (Vodafone, Shell) to reach a resolution.