Shome relief for Vodafone in tax case

A high-level expert panel set up by the government has said retrospective amendments in tax laws targeting overseas mergers and acquisitions of companies with assets in India, should be scrapped. The recommendation is expected to bring major relief to British telecom giant Vodafone in its dispute with the income-tax department.

The Parthasarathi Shome committee, appointed by Prime Minister Manmohan Singh, has also said that while foreign institutional investors will be taxed, those who put money into such institutions through participatory notes will not be taxed as it amounts to double taxation. An earlier report of the committee had sought postponement of the General Anti-Avoidance Rules by three years through which the revenue department had sought to bypass tax shelters such as Mauritius.

With its two-part report, the Shome committee has almost completely overturned the aggressive tax structure put in place by previous finance minister Pranab Mukherjee in this year's budget. The changes had brought deals such as the Vodafone-Hutchison takeover in the tax net and led to a flight of capital from Indian stock markets between March and June.

The committee has said retrospective tax laws should be applied under the "rarest of rare cases". Even if applied, no interest or penalty should be levied retrospectively and "exhaustive and transparent" consultations are a must before such changes are made laws.

The panel's recommendations are expected to draw the curtains on Vodafone's Rs 11,218-crore tax case over its 2007 deal with Hutchison. Going by the recommendations, Vodafone will not be treated as a tax defaulter or a representative assessee of Hutch for not withholding the tax arising out of the deal. Also, in case the tax has to be paid, only the principle tax amount would be collected from the tax payer and no interest or penalty would be levied.

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