New Delhi, Jan. 28: The government today decided against challenging a Bombay high court ruling that had exempted Vodafone from paying a tax of Rs 3,200-crore in a transfer pricing case.
The decision will have a bearing on similar litigations involving other MNCs such as Dutch oil major Shell.
The development comes at a time the Centre wants to attract overseas investments. The government wants to convey a clear and positive message to investors globally that its decisions would be "fair, transparent and within the four corners of law", telecom minister Ravi Shankar Prasad said after the cabinet meeting.
Welcoming the government's decision, the UK-based telecom giant today said stability in tax matters was important for investors. "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," a company spokesperson said.
US President Barack Obama has sought "consistency" and "simplicity" in regulatory and tax environment in India to boost trade and investment between the world's two largest democracies before wrapping up his three-day visit yesterday.
The retrospective taxation brought in by the previous UPA government in connection with a separate Vodafone case, had raised serious concerns over predictability and consistency of the tax policies and had put off overseas investors from Indian markets.
Describing today's decision as a "major correction of a tax matter, which has adversely affected investor sentiment," the government said this would set at rest the uncertainty prevailing in the minds of foreign investors in respect of transfer pricing cases.
"It will bring greater clarity and predictability for taxpayers as well as tax authorities, thereby facilitating tax compliance and reducing litigation on similar issues ... improve the investment climate in the country," it added.
The decision not to appeal against the court judgment was based on the advice of attorney-general Mukul Rohatgi, who had asked the income tax department to accept the order.
Prasad said Arun Jaitley had held discussions with CBDT officials, the attorney-general and solicitor-general and it was found that the court's opinion was right.<-3.000>
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The decision of not appealing against the court judgment followed the advice of attorney-general Mukul Rohatgi, who had asked the income tax department to accept the order.
In October, the high court had said the UK-based telecom giant was not liable to pay a tax of Rs 3,200 crore in a case related to transfer pricing.
The judgment and the cabinet decision is expected to solve 26 similar cases over transfer pricing against companies such as Shell, WNS and Nokia.
Prasad said finance minister Arun Jaitley had held discussions with the Central Board of Direct Taxes, attorney-general and solicitor-general and it was found that the high court's opinion was right. "This fruitless litigation was avoidable in the past," he added.
Investor confidence was shaken in the past because of very fluctuating tax policy wherein views of investors and government were at loggerheads, Prasad said.
By this decision, he said, "a kind of signal we have given namely where the I-T liability is clear and unambiguous, it shall be charged. Where it is over stretched without legal authority, the government will be fair. That is the indication. It shows our fairness".
The government, which is seeking overseas investments in a big way, has been conveying to foreign investors that it will pursue a non-adversarial and transparent tax regime.
The NDA government is of the view that the retrospective tax amendment brought in by the previous regime to overturn a Supreme Court decision in a different Vodafone case brought only bad name and did not yield any revenue.
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