On the heels of finance minister Arun Jaitley’s iteration that unsustainable tax demands won’t get the government anything but a bad name, attorney general Mukul Rohatgi has asked the income tax department to desist from filing an appeal against a Bombay High Court ruling in October that struck down its bid to add about R5,000 crore to the taxable income of Vodafone in India for 2008-09 and 2009-10.
If the AG’s opinion prevails, it would benefit not only Vodafone but also energy giant Shell, which also obtained a favourable ruling from the same HC on a similar tax issue on November 18. The development also spells good news for over two dozen other companies, including Essar Group firms and HSBC Securities and Capital Markets, that are fighting similar tax demands in various courts.
“I have asked the income department to accept the judgement of the high court. I have said in my opinion (there is no need to) file an appeal,” Rohatgi said. “I have concurred with the view of the Central Board of Direct Taxes chairman.”
The HC last week set aside the I-T department’s notices that sought to increase the income of Shell’s Indian arm for two years — 2007-08 and 2008–2009 — by close to R18,000 crore. To seek the income addition, the taxman had applied the transfer pricing principle to Shell India’s issue of shares to its Dutch parent alleging an undervaluation.
The high court had invalidated the taxman’s bids to add to the income of Vodafone and Shell saying there wasn’t any express provision in law to classify any shortfall/premium in share valuation in cross-border deals as income.