Revenue Dept likely to dial Hutchison for capital gains tax

Shishir Sinha Updated - March 12, 2018 at 08:54 PM.

Move may lead to another long-drawn legal battle

vodafone

The Revenue Department may raise a demand for capital gains tax against Hutchison, the Hong Kong-based company which was the seller in the Vodafone acquisition.

However, tax experts believe such a move could begin another round of long-drawn court battles.

A senior Revenue Department official told

Business Line , “Once the Finance Bill with the provision of retrospective amendment in the Income-Tax Act 1962 is passed in Parliament, we may raise fresh demand for tax on capital gains made in the Vodafone-Hutchison deal.”

Since Hutchison is the recipient in the deal, demand is to be raised against the company, he added. However, he clarified that no final decision has been made in this regard. The Supreme Court, in its order on January 12, 2012, ruled that Vodafone is not liable to pay tax on this deal.

The Finance Secretary, Mr R.S. Gujral, had already said that the Vodafone case was not one of double taxation. Rather, it is a situation where no tax had been paid on such a sale anywhere. Such capital gains not being taxed anywhere in the world is not desirable, he had said during a a post-Budget meet with industry chambers.

The matter is attracting headlines after the Finance Minister, Mr Pranab Mukherjee, proposed to amend some provisions of the Income-Tax Act 1961 retrospectively from April 1, 1962. This has been done mainly to reassess Vodafone-like deals.

According to the Finance Ministry, the Supreme Court in its judgment had indicated that the Government should try to bring about tax certainty by taking effective legal measures. The apex court had not said that these legislative measures should be prospective or retrospective, it had argued.

However, tax experts differ. Mr Pranav Sayta, Partner, Ernst &Young, said: “If the Revenue Department raises a demand, in respect of capital gains tax and on the basis of the provision of the Bill when it becomes law, the matter is likely to be challenged in court. The constitutional validity of the retrospective nature of the amendment is likely to be challenged.”

However, he said that in the past, there have been instances where retrospective amendments have been upheld by courts on the ground that Parliament does have the power to amend laws with retrospective effect.

But this particular retrospective amendment is likely to be challenged owing to the peculiar circumstances under which it is sought to be introduced, he explained.

> Shishir.s@thehindu.co.in

Published on March 25, 2012 16:30