Pranab: Will not reopen cases prior to Apr 1, 2012

Meanwhile, the ministry has told British telecom major Vodafone that its recent arbitration notice over the multi-billion dollar tax dispute related to the 2007 Hutchison acquisition was premature, which warranted no response from the government. The Dutch subsidiary of Vodafone served the arbitration notice on the Indian government invoking a bilateral investment protection agreement between India and the Netherlands after New Delhi amended Income Tax Act with retrospective effect to bring Vodafone-type deals under the tax net.

While the government wants to crack down on Vodafone like deals, it is very focused and does not want to keep the scope of reopening of old cases too wide.

Mukherjee’s proposal in the union budget 2012-13 to amend the law with retrospective effect to tax overseas transactions involving Indian assets, has now come into force after Presidential assent to the Finance Bill 2012. It could neutralise Vodafone’s victory in Supreme Court on the dispute. The UK-based telecom major had acquired Hutchison’s stake in Hutchison Essar Ltd for $11.2 billion in 2007 without deducting tax at source while making payment to Hutchison. The move had caused foreign investors fret over possible reopening of old cases. Finance ministry officials maintain that tax disputes does not come under the purview of Bilateral Investment Protection Agreement (BIPA).

Mukherjee recently promised in Parliament that the Central Board of Direct Taxes would clarify that deals, assessment of which have been finalised before April 1, 2012 shall not be reopened. ?Now CBDT has issued a circular in this regard”, the minister said here.

Officials said the ministry will issue fresh tax demand notice to Vodafone soon. There are around ten companies, apart from Vodafone that could get similar notices.