Planning Commission Deputy Chairman Montek Singh Ahluwalia on Sunday said the Finance Ministry would send out positive signals to investors by not reopening the Vodafone case.
Asked during Karan Thapar's ‘Devil's Advocate' programme on CNN-IBN whether it would not help the situation if the Finance Ministry were to announce that it would not reopen the Vodafone case on the basis of amending the income tax laws, Mr. Ahluwalia said, “I am sure, it would.”
“I think what they [the Finance Ministry] have done is, dominantly, to change the law. And I think objectively that particular change is not only an appropriate one, it is something they have signalled in the DTC [Direct Tax Code].”
“ ...as a general rule I agree with you one should avoid retrospective amendment [in laws],” he added.
Finance Minister Pranab Mukherjee, in his budget, has proposed amendments to the Income Tax Act, with retrospective effect from 1962, to bring into the net overseas deals concerning domestic assets.
As per the proposed amendments, all persons, whether residents or non-residents, having business connections in India, will have to deduct tax at source and pay it to the government even if the transaction is executed on a foreign soil.
The amendments, once carried out, will have implications on Vodafone which won the Rs. 11,000-crore tax dispute case in the Supreme Court. It will also impact other similar cases involving taxes to the tune of about Rs. 30,000 crore.
About the impact of the proposed amendment on the Vodafone case, Mr. Ahluwalia said, “I do not want to comment on the impact on any particular company. I think ... it is not only an appropriate one, but something we have signalled in the proposed DTC. We are going to do that anyway.”
In the Vodafone case, the Supreme Court had held that the I-T Department did not have the jurisdiction to levy withholding tax for its $ 11 billion acquisition deal with Hutchison Essar in 2007.
When his attention was drawn to HDFC Chairman Deepak Parekh's criticism of the proposed amendment, Mr. Ahluwalia said, “I am aware that there has been a very negative reaction. I am sure the Finance Minister is also aware of it...So as I said, most people tend to regard retroactive amendment as undesirable.”
On the impact of this move on foreign investment flows, he said, “Whenever you have retrospective amendment which affects an individual, he will certainly feel that he has been treated unfairly.”
However, he allayed fears that this would impact the flow of foreign funds into the country.
