Vodafone case: Govt not to appeal against Bombay High Court ruling

As part of its commitment to create a fair and transparent tax regime for foreign investors, the Centre has decided not to appeal against the Bombay High Court’s verdict in the Vodafone tax case.

Briefing media after a Cabinet meeting on Wednesday, Telecom Minister Ravi Shankar Prasad said Attorney General Mukul Rohatgi’s advice to not move the higher court has been accepted.

“The Government wants to convey a clear message to global investors. We have tried to give a positive message,” he added.

Vodafone, in a statement, said: “We welcome the Indian Government’s decision not to appeal the Bombay High Court ruling. Stability and predictability in tax matters are important for long-term investors such as Vodafone.”

The tax authority had issued a show-cause notice to Vodafone on January 17, 2014, for a transaction that took place in fiscal year 2010. Later, it passed an order asking the company to pay an additional ₹3,200 crore in tax for allegedly undervaluing the shares of its Pune BPO.

Decisions on other tax disputes (20 in all), including Shell, will be taken on a ‘case-to-case’ basis. Both the Vodafone and Shell cases relate to a tax demand on transfer pricing. The Bombay High Court had ruled that there is no tax liability.

Transfer pricing is the practice of arm’s length pricing for transactions between group companies based in different countries, to ensure a fair price.

The tax provision it attracts is similar to that for transactions between unrelated parties.

“The conscious view of this Government is that if there is a clear income-tax liability, it will be enforced. If there is uncertainty and ambiguity, the Government will intervene,” he said.

Arun Chhabra, Director, Grant Thornton Advisory Pvt. Ltd, said “The decision not to appeal the Vodafone verdict, which has huge tax amounts involved, sends out a very positive message that the government is serious about avoiding and cutting down on unnecessary litigation. This also lends credence to the government’s averments regarding a non-adversarial tax administration.”

Echoing a similar view, Vijay Iyer, National Leader – Transfer Pricing, EY, said: “Investors will feel more assured that absurd adjustments will be not be encouraged by the Government.”