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The Government has initiated moves for a conciliatory out-of-court settlement with British telecom major Vodafone over the Rs 11,000 crore tax dispute with Attorney General G E Vahanvati favouring such a step, marking a change in the stance.
The move was initiated as soon as Kapil Sibal took over as the Law Minister yesterday. His predecessor Ashwani Kumar as also the AG had earlier disfavoured such a move.
Soon after taking over, Sibal sought fresh opinion of the AG who gave a nod for conciliation of the tax dispute as was proposed by Vodafone.
Vahanvati is understood to have changed his opinion in the light of finance ministry clarification that the conciliation proposal would not bypass or alter the tax liability under the Income Tax Act, they said.
The finance ministry has also said that any agreement reached with Vodafone would have to be approved by the Cabinet and finally by Parliament as an amendment will have to be made to the Income Tax Act, the sources said.
This was Vahanvati’s second opinion on the issue.
Earlier, Kumar had opposed conciliation, saying the Executive cannot overturn an Act of Parliament. The AG had then concurred with Kumar’s view.
After AG’s first opinion, the finance ministry had given clarification to the Law ministry, the sources said.
Vodafone is facing the tax liability of over Rs 11,217 crore for purchase of Hong Kong-based Hutchison Whampoa’s stake in Indian telecom business Hutchison Essar in 2007.
The tax liability arose due to amending of the Income Tax Act, 1961 with retrospective effect during the tenure of the then Finance Minister Pranab Mukherjee to undo the Supreme Court judgment that was ruled in favour of Vodafone.
The Vodafone dispute was seen as having a discouraging impact on foreign investors’ sentiments.
While taking over as Law Minister yesterday, Sibal had said that he would work to ensure that “legal processes and procedures should not be an impediment to economic growth, but must fuel it.”
Sources said by agreeing to initiate the conciliation process, the Finance Minister P Chidambaram wanted to send a positive signal to investors.
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