Vodafone hints at paying tax on Hutch deal, but without penalty and interest

UK-based telecom giant Vodafone has said it is willing to discuss tax-related issues with the government and pay the tax on the Hutch deal provided the interest and penalty are waived off.

"It is an option. I don't know if it is feasible," Vodafone India non-executive chairman Analjit Singh told the media here when asked if it is a feasible option for the telecom giant to pay Rs 8,000-crore tax if the penalty and interest are waived.

After meeting finance ministry officials at North Block earlier this week, Singh said Vodafone is willing to discuss the tax issue with the government and does not want to get into any sort of controversy.

"We have made our public position very clear that Vodafone is completely ready to discuss the matter. Vodafone is not a company that is confrontationist or controversial. This is not Vodafone's business; its business is telecom," he said.

Earlier this week, Vodafone chief financial officer Andy Halford had said in London that the company might make a provision to cover the legal risks arising out of the tax dispute with the Indian government.

In February, Singh had met Planning Commission Deputy Chairman Montek Singh Ahluwalia, with whom he enjoys a close rapport. Prime Minister Manmohan Singh was at the time holding temporary charge of the finance ministry after Pranab Mukherjee quit to contest the presidential poll.

Vodafone appears to be having a case for a penalty waiver with the Income Tax Settlement Commission (ITSC) because retrospective amendments do not apply to penal provisions. ITSC settles tax liabilities across the board in complicated cases to avoid prolonged litigation.

The income tax (I-T) department had raised a Rs 11,218-crore tax demand, including Rs 7,900 crore tax and the remaining as interest, from Vodafone for its acquisition of Hutchison stake in Hutchison-Essar in 2007 through a deal on Cayman Islands.

But the Supreme Court struck down the tax claim. Following the apex court's judgment, the government in the Finance Bill, 2012, had proposed amendments in the Income Tax Act, 1961, with retrospective effect to bring overseas mergers and acquisitions involving domestic assets under the tax net.

While the I-T department has raised a demand of Rs 20,000 crore on Vodafone, only Rs 7,900 crore of it constitutes the basic tax while the rest comprises penalty and interest on this sum due since 2007. Senior officials are of the view that under the current laws, no other compromise is possible in the form of the government offering a relaxation in the tax amount.

A senior official said that there is no such thing as an outof-court settlement under the current laws. "Any concession through an executive order would run into a major political controversy. It would also smack of discrimination against other tax-compliant corporates," the official added.

The I-T department is confident that it has a very strong case over Section 163 in the High Court as the agreement between Vodafone and Hutch puts all the responsibility of paying taxes on Vodafone.

While Vodafone had won the tax case in the apex court against the tax demand, the Finance Bill had amended the law with retrospective effect.

This brings the company in the ambit of the tax and unless another amendment takes place, the law stands, a senior official pointed out.

Courtesy: Mail Today