Govt. non-appeal in Voda share valuation case – Ushering in a non-adversarial regime?


By most media accounts, the Attorney General of India (AG) - Mukul Rohatgi, has advised the Government against appealing in Supreme Court, the Bombay HC judgment on the multi-billion dollar share valuation issue. If the Government indeed does accept the AG's opinion, it could truly be a defining moment and one of those rare occasions where the Revenue has raised the 'white' flag in a high profile, hotly contested tax dispute.


Is the government & CBDT finally following through on its promise of ushering in a non-adversarial regime? Will this bring a thaw in the often frosty relationship between the taxpayer and tax department? Is this a signal to MNCs that 'tax terrorism' will soon be a thing of the past? And could the non-filing of SLP in this case be a precedent for other cases as well? 

Gautam Doshi
Group MD, Reliance ADAG

The apparent approach of the Government of accepting as correct the decision of the Bombay High Court in the Voda Share Valuation case is indeed most heartening. As per newspaper reports the concerned Chief Commissioner and the CBDT have already advised against filing of appeal to the Supreme Court. It is a clear signal that the Government is ready to accept that its officers may have made mistakes or may have taken unjustifiably aggressive views in their quest for revenue. More important, it is a signal that senior officers of the Government have the courage to and are willing to support, an apparently, correct legal position, even if it means giving up huge revenue demands. I am sure that a responsible CAG is not going to doubt the bona fides of those who take such bold decisions. This change of mindset can lead to progressive cooperation between the Government and business and industry. This, in turn, can help achieve fast and significant development which all of India is aspiring for. 

Dinesh Kanabar
Founding Partner, Dhruva Tax Advisors

I do hope that the final decision of the government will be consistent with the recommendation of the AG. When I had first suggested that the government accept the Bombay High Court judgement, there were cynics who felt this was preposterous to suggest. I am glad that the cynics have been proved wrong.

If this does go through, it will be a landmark decision. It will demonstrate that the government does walk the talk on non adversarial tax regime. It will send right signals to the global investors that litigation in India is not an endless exercise.

There were other positive measures taken in the preceding budget but are awaiting implementation. Implementation of those and following the recommendation of the AG will truly signal that we are moving towards a friendly tax regime. 

Rajendra Nayak
Partner, International Tax Services , EY LLP

Credibility of the tax administration of a country depends to a very great extent upon the credibility of its dispute resolution mechanism. An environment which has a large number of tax disputes – particularly in the areas of international taxation and transfer pricing – results in a perception of risk and uncertainty among investors. As a country, we have almost unparalleled tax litigation. It takes several years before a matter is finally resolved by a binding judgment of the Supreme Court. Until then, taxpayers carry a considerable burden of an uncertain tax position and the tax administration is unable to fully collect, what it believes are, the just dues. The recent TARC report highlights the low success rate for the tax administration in litigation with the success of the tax administration at each level being substantially lower than the success rate of the taxpayer. 

One of the promises made by the government to the investor community was to create a policy environment which is predictable, transparent and fair and implement a tax regime which is non-adversarial and conducive to investment, enterprise and growth. One immediate imperative on the agenda of the new Government therefore was the need...

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Rupak Saha
Tax Head, GE India

It's a welcome decision. More welcome is the press report that suggests that the decision was echoed from senior officers within the ‎tax department including from the CBDT chair.  It's too early to predict whether this is the harbinger of a non controversial tax regime. It's perhaps unfair to expect that the Revenue officers have the ability to suddenly adopt a completely different course of audit and examination, given the environment they continue to be, where revenue collection pressures presumably still loom large and the fear of departmental and CAG audit force them to take positions that they may disagree with intellectually. All the more reason to start implementing the TARC report chaired by Dr. Shome. Unless the eco system is addressed, it's unlikely that we will see quick results on the ground. At a policy level however, we can hope that we will see a more holistic approach to revenue generation in the forthcoming budget through appropriate measures of widening the tax base, instead of the government chasing the narrow band of MNC's and attempting to extract more and more taxes out of them. Some of the more egregious amendments in the 2012 Budget can still be...

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Girish Vanvari
Partner, Co-head of Tax, KPMG

This is indeed a defining moment for the Government of India.  Based on the AG’s recommendation if no appeal is filed, it would certainly restore the much needed confidence with the International investors.  Non filing of the SLP in the Supreme Court and alongwith in future a possible repeal of the retrospective amendment could take the investor confidence to a different trajectory.  

Sanjay Sanghvi
Partner, Khaitan & Co.

Certainly, this is a very very positive and welcome move on the part of the new NDA Government. This decision of the Government not to contest the Bombay High Court ruling in the Vodafone transfer pricing case (which represents the correct legal position on the subject) is in line with its stated policy of ending uncertainty and bringing stability in the Indian tax laws for Indian corporates as well as foreign investors. 

In my view, this decision sets the stage for the next 5 years of this new Government to try and create a predictable and stable tax environment in India to facilitate economic growth in the larger interest of the country. 

Given that Mr Modi Government has built high expectations (and aspirations!!), it will not be out of place to mention that if this Government can also take a final decision/position on that other Vodafone tax issue (acquisition of stake from Hutch), then it would be a jewel in the crown of this Government.

While on the subject of ‘certainty’ and ‘predictability’ of tax laws, one would also now look forward to some announcement from the Government (either in the next Budget or before...

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Sudhir N. Nayak
Partner, Sudit K. Parekh & Co.

The recent judgment of the Bombay High Court in the case of Vodafone India Services Private Limited (WP No.871 of 2014) (Bom) came as a great relief to taxpayers already embroiled in the controversy of whether transfer pricing (TP) adjustment can be made to taxable income of the taxpayer merely on account of difference in valuation of shares issued to overseas associated enterprise (AE). The Bombay High Court (HC) finally proceeded to hold that that issue of shares at a premium by Vodafone India in favour of its AE did not give rise to any “income” from an international transaction and therefore, there was no need to invoke TP provisions. The judgment was given by the Bombay High Court on the settled principle that a capital receipt (in this case share premium) is not subject to income-tax in India unless specifically permitted by the legislation. Accordingly, the HC held that in the absence of any such provisions in law, the action of the tax officer in making the TP adjustment was bad in law. This judgment is quite significant as the disputed tax amount involved in this case was multi-billion Indian rupees. 

It is relevant to note...

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K.R. Sekar
Partner-Tax, Deloitte Haskins & Sells

The opinion given by Learned Attorney General is certainly path breaking considering the significant stakes involved.   In my view the action of department subjecting the transaction of infusion of share capital by foreign company into Indian company under the transfer pricing regulations and deeming it as income is beyond the provisions of the Income-tax Act. The Mumbai High Court has rightly rejected the views of the department and interpreted the provisions of the law in right and fair manner. The department in my view should accept the ruling and position as articulated by Mumbai High Court. If the revenue appeals the ruling of Mumbai High Court notwithstanding the correct interpretation by Mumbai HC it would have expose the “overzealous” attitude of the revenue. Hence the opinion of learned Attorney General is right and apt considering that the Industry and Investors are looking for non-adversarial attitude from the income tax department. If department accepts the opinion of learned AG and decides not to appeal certainly it heralds the beginning of new era in tax administration and tax litigation.