Vodafone taxation issue has become
subject matter of
much litigation, controversy and interpretations. It has touched the
issue of FDI
in India, sovereignty and international arbitration.
It
also witnessed the episode of Vodafone
serving notice upon Indian government over retrospective taxation
issue.
Meanwhile, the consolidated
FDI policy of India 2012 by DIPP was released.
It also
covered area of FDI
in telecom services, ISPs and telecom infrastructure providing
sectors of India. One of the essential
conditions in this
regard says that FDI in telecom sector shall be subject to laws of
India and not the laws of the foreign country/countries.
Further, FDI
in telecom sector of India and national security issues
have also been clubbed. In a parallel development, the FIPB
rejected Telenor’s joint venture proposal declaring it pre mature.
Clearly, telecom sector of India is heading towards big policy and
legislative changes.
International community and diplomatic
channels have
also been involved in this regard. Speaking to Muntazir
Abbas of CIOL,
noted Supreme Court counsel and managing partner at Perry4Law
firm Praveen Dalal said that diplomatic channels are used to
negotiate and generate solutions but they cannot override a well
defined and Constitutionally valid retrospective taxation amendment
law.
Dalal believes that India is losing a
significant
amount through such offshore deals. This, he said, is happening
because India had no law that could have made such foreign
transactions taxable.
The government, Dalal said, is trying
to achieve two
tasks. “The first one is to formulate and enact a validation law
that can cure the defects pointed by the Supreme Court while
adjudicating the Vodafone’s case,” he informed.
Secondly, as Dalal points out, the
Finance Ministry
is bringing retrospective amendments to the country’s Income Tax
Law so that offshore transactions made after the cut off date can be
brought under tax net. This arrangement, Dalal said would bring
taxation revenue to India of mass proportion.
It seems even the Finance Minister Mr.
Pranab
Mukherjee also agrees with Praveen Dalal. Finance Minister believes
that the proposed retrospective changes in the income tax law are
only “clarificatory” and will not override double tax avoidance
pacts. He maintains that the clarificatory amendments had been
proposed in the Finance Bill 2012 to state the legislative intent of
certain provisions of the Income-Tax Act relating to offshore mergers
and acquisitions.
Since the proposed amendments just
clarify what is
already there in law to remove ambiguity and provide certainty, it
will not have any impact on foreign investment flow in the country,
Mr Mukherjee said.
Law Minister Salman Khurshid has
informed that the
issue of amending the I-T Act, 1961, is a part of the finance bill,
and will be taken up by Parliament in the first week of May and I
have to go by what Parliament decides.
So the ball is now in Indian
Parliament’s court
and it has to play with it really nicely, says Praveen Dalal. Needless
to mention, Parliament of India has to do it in a “Constitutional
Manner” suggests Dalal.
