Vodafone Tax - Murkier Times

By Vijay Kumar

AS the parliament is about to pass the Finance Bill, the debate is getting shriller. It is said that Prime Minister Manmohan Singh had written to his British counterpart Gordon Brown in 2010 that there is no retrospective application of taxation in India.

But the Finance Secretary says "There was no retrospective application of taxation; It was not a clarification, just an implementation of what the tax authorities had always believed." The Finance Secretary also sated that Vodafone was informed by the Income Tax Department, even before it had made final payments to Hutchison, that it would have to deduct tax on the transaction.

But now Vodafone says, "This is completely untrue. At no point before the transaction concluded and the payment was made did any entity of the Vodafone Group receive any communication at any of its business addresses from the Indian Tax Authorities requesting a payment of withholding tax."

Retrospective legislation is here to stay and in the Vodafone case, the Government cannot now go back – Long battle ahead and good times for the Legal hawks.