After the Bombay High Court gave a favourable ruling to Vodafone in the ₹8,500-crore transfer pricing case recently, tax experts have mixed views on whether the Centre would prefer an appeal before the Supreme Court.

Some feel the Centre may have to do some tight-rope walking, given the adverse impact that its retrospective taxation adventure in 2012 has had on investor sentiment in recent years.

A section of experts contends that the government will prefer to live up to its promise of ending ‘tax terrorism’ and may, therefore, not go in appeal, while some others see “high possibility” of the Centre moving the apex court against the Bombay High Court’s verdict.

All eyes are now on the final copy of the Bombay High Court ruling to see the exact principles on which it had given a favourable ruling to Vodafone.

Last Thursday, the Bombay High Court gave a favourable ruling to Vodafone in the case related to the sale of the company’s call centre business to Hutchison and assignment of call options to Vodafone International. The ruling followed a similar victory late last year in which the Bombay High Court had given a favourable ruling to Vodafone (in another transfer pricing matter).

It may be recalled that it is only the ‘rarest of the rare’ cases (Shell India case and Vodafone) that the Centre has preferred not to appeal against a High Court order on a seemingly unjust taxation issue.

Shell’s unique case The Shell case was somewhat unique and moreover the decision not to appeal was taken at the highest level in the Central government. Therefore, it is natural to expect that the Vodafone transfer pricing case will automatically travel to the Supreme Court as a normal process, say tax experts.

In this case, the impression gathering ground among several tax experts is that the Bombay High Court may have missed an amendment in the income-tax law (2012 amendment on indirect transfers--on a retrospective basis).

Amit Agarwal, Partner (transfer pricing), Nangia & Co, a firm of chartered accountants, says the possibility of the Centre preferring an appeal appears high, given the uncertainties surrounding the interpretations adopted by the Bombay High Court in deciding applicability of transfer pricing provisions.

It appears — based on the information in the public domain — that the Bombay High Court has relied on the 2011 judgment of the Supreme Court where the apex court had ruled that indirect transfers are not subject to Indian income tax, Agarwal said.

While doing so, the High Court has perhaps failed to take cognisance of the retrospective amendment in the Finance Act, 2012, by virtue of which all indirect transfers have been subject to tax retrospectively from 1962, he added.

Aseem Chawla, Partner, MPC Legal, said in the present circumstances, when the government is rhetorical about ending ‘tax terrorism’, and considering that the tax department is largest contributor to litigation, careful and measured thought should be given by the law officers of the country in deciding on further pursuing the matter before the Supreme Court. From the taxpayers’ perspective, the judgment reposes the trust in the judicial system and goes a long way to demonstrate that the fundamentals of the Indian tax system are intact and India is committed to a non-adversarial tax regime.

Silver lining for taxpayers As for the impact on other taxpayers involved in similar disputes, the judgment serves as a silver lining as they look forward for similar adjudication in their high-stake cases.

However, one thing is for sure. The Bombay High Court judgment adds to the spate of wins that Vodafone has had in its tax disputes within the country.

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