No change in stand on Vodafone tax issue: Pranab

In a strong message to multinationals campaign against taxing Vodafone, the government on Tuesday ruled out any rethinking on the issue, making it clear that India cannot be a tax haven just to attract foreign investment.

It also asserted that Parliament has the right to make amendments to law to correct Supreme Court judgement and would not allow a situation where a corporate would avoid paying tax here by operating from a tax haven.

"I would like to be guided either by Double Taxation Avoidance Agreement (DTAA) or tax. There cannot be a situation that somebody will make money on an asset located in India and will not pay tax either in India or to the country of its origin...because of making some arrangements through certain tax haven areas through a complicated setting up of series of subsidiaries and having huge capital gains on the assets located in India," Finance Minister Pranab Mukherjee said in a forthright assertion of the proposal to make a retrospective amendment to tax Vodafone-type deals.

In an hour-long speech in reply to the debate in the Lok Sabha on the Finance Bill, he said taxing Vodafone is about combating black money menace and referred to the Supreme Court judgement which had held that the British telecom major was not liable to pay tax on its acquisition of Hutchison stake in Hutchison Essar in 2007.

The Bill was later passed.

Ever since the Budget proposed to amend the Income Tax Act with retrospective effect to tax Vodafone-type deals, international business and domestic industry have been campaigning against such a move saying it would hurt foreign investment.

Referring to questions as to how the Government could go against the Supreme Court judgement, Mukherjee said, "I am fully aware of my right as a legislature, law making power only vests in Parliament. The Supreme Court may interpret law but equally Parliament has right, legislative right to express its intention by making amendment to correct the SC judgement."

He said the very first amendment of the Constitution of India arose out of the judgement of Supreme Court in 1956.

However, he added, that the government in the past had not amended the Constitution when the Supreme Court gave judgements in the Golaknath case or the Kesavananda Bharti case when it was held the fundamental rights cannot be abridged or the basic structure of the Constitution cannot be amended.

The Minister said the Constitution has given judiciary the power to interpret, but law is to be framed by Parliament while amending it or asserting Parliament's right is not taken away.

Explaining the purpose of the amendment in the wake of the Vodafone verdict, he said, tax liability will arise retrospectively six years before the date of asset.

He also reiterated his Monday's clarification that assessments which have been closed would not be reopened.