Comments
India Inc has made its first move to frustrate the taxman’s efforts to collect income-tax on indirect share transfers, post the retrospective amendments of this year’s Budget.
McLeod Russel India Ltd, engaged in the manufacture and sale of bulk tea, has filed a writ petition in the Calcutta High Court challenging the constitutional validity of the retrospective amendments. The petition admission hearing is slated for July 10.
McLeod has contended that retrospective amendments are substantive, not clarificatory and made by the Union Government only to negate the Supreme Court ruling in the Vodafone case. The retrospective changes are violative of Article 14 (right to equality) and Article 19 (right to carry on business) of the Constitution, it said.
TDS obligation
With the Finance Bill enacted into law on May 28, the retrospective amendments are now on the statute book. The taxman is well within his right to collect taxes on offshore share transfers involving substantial Indian assets.
At least 19 cases involving indirect share transfers, and with a revenue implication of Rs 40,000 crore, are pending disposal. McLeod Russel India is challenging the constitutional validity of the retrospective amendments as it is faced with a TDS assessment order from the Income Tax Department. The retrospective amendment has, in effect, confirmed a tax deduction at source (TDS) obligation on McLeod Russel India for its share purchase agreement with Williamson Tea Holdings Plc, UK (WTH).
McLeod Russel India had paid £17 million to WTH to acquire the latter’s wholly-owned subsidiary, Borelli Tea Holdings Ltd, UK (BTH).
BTH was holding 70 per cent of the share capital of Williamson Tea Assam Ltd, an Indian-listed company engaged in the business of tea plantations and manufacture and sale of tea.
The I-T Department had served a show-cause notice on the petitioner as to why it should not be treated as an assessee in default for withholding tax on payments made to WTH and also for the non-compete fee. The petitioner had also paid £3.7 million as non-compete fee to WTH.
No assets transferred
The petitioner had argued that WTH and BTH were situated outside India and that no capital asset situated in India was transferred. Hence, no capital gain accrued to WTH and thus there was no obligation for McLeod Russell to deduct tax at source on payments made to WTH.
The revenue authorities, however, rejected McLeod Russel India’s arguments. The matter reached the Commissioner, Income Tax (Appeals), and the final hearing was deferred in the wake of the Supreme Court’s pending decision in the Vodafone issue. While the petitioner later submitted that its case was covered by the favourable Supreme Court ruling in Vodafone, the final disposal of the appeal was deferred in the wake of changes proposed in the Finance Bill 2012.
“The retrospective amendments made by Finance Act 2012 have a significant impact on cross-border transactions, Therefore, the constitutional validity of the same merits consideration. The matter is now before the Court for consideration,” said Mr Amit Singhania, Principal Associate, Amarchand & Mangaldas, a law firm.
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.