Vodafone may exit tax crash course, considers out-of-court settlement

Vodafone is considering to reduce its confrontation with income tax (I-T) authorities and could seek a solution through the Income Tax Settlement Commission in the Rs 20,00-crore tax case.

Vodafone is considering to reduce its confrontation with income tax (I-T) authorities and could seek a solution through the Income Tax Settlement Commission in the Rs 20,00-crore tax case .

Vittorio Colao, CEO, Vodafone Group
Vittorio Colao, CEO, Vodafone Group, had sought tax exemption from the government related to the company's 2007 Hutch deal.
A Vodafone source told Mail Today, "The company is not interested in confrontation. We don't want this to be a protracted affair. If opportunity for an out-of-court settlement emerges, we will study it because we are here to do business." "At the end of the day, this is a shareholder issue. Vodafone Netherlands is the investor which owns 74 per cent stake. Unfortunately, the Vodafone matter has led to an all-pervasive negative sentiment," he added.

Vodafone has moved the Bombay High Court against the income tax department for invoking Section 163 of the Income Tax Act, which makes it liable to pay tax liabilities as the agent of Hong Kong-based Hutch, from whom it had acquired a majority stake in the mobile phone company in 2007.

"The next hearing for the case is scheduled for July 27. If Vodafone drops the case and accepts the tax liabilities of Hutch, it can move the Income Tax Settlement Commission for waiver of penalty and interest raised by the I-T department," a senior official told Mail Today.

Income Tax Settlement Commission settles tax liabilities across the board in complicated cases to avoid prolonged litigation. While the income tax department has demanded Rs 20,000 crore from the telecom giant, only Rs 7,900 crore out of this amount constitutes the basic tax; the remaining comprises penalty and interest on this sum due since 2007.

Senior officials are of the view that under the current law, no other compromise is possible in the form of the government offering a relaxation in the tax amount.

A senior official said there is no such thing as out-of-court settlement under the current law. Any concession through an executive order would run into a major political controversy. It would also smack of discrimination against other tax-compliant corporates.

While Vodafone had won the tax case in the Supreme Court (SC), the Finance Bill had amended the law with retrospective effect under which the government can initiate proceedings so that the Vodafone-Hutch deal comes under the ambit of capital gains tax. Vodafone appears to be having a case for penalty waiver with the Settlement Commission because retrospective amendments don't apply to penal provisions.

"The I-T department is confident of having a very strong case under Section 163 in the High Court as the agreement between Vodafone and Hutch puts the responsibility of paying taxes on Vodafone," an official pointed out. "This a standard clause in all such agreements," he added. However, the tax authorities have not issued any fresh notice to Vodafone because they are waiting for court proceedings. Analjit Singh, non-executive chairman, Vodafone India, had met Montek Singh Ahluwalia, deputy chairman, Planning Commission, on Thursday.

The meeting gains significance as Ahluwalia enjoys a very close rapport with Prime Minister Manmohan Singh, who is in charge of the finance ministry as well. However, Analajit had denied any discussion on the tax issue.

A senior IT official said that once Vodafone agrees to pay the tax, the revenue authorities could look at easing the financial burden on the company by allowing it to pay the money in installments.

Courtesy: Mail Today