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Reference No.                   Dated:January 27, 2012

Sub:Vodafone case-few suggestions to implement in future tax laws

The Supreme Court set aside a Bombay High Court verdict directing Vodafone International Holdings to pay Rs.11, 000 Crores to the Income Tax Department by way of capital gains tax -after the telecom major acquired a majority stake in Hutch Essar in the country as it held that a transaction of transfer of shares of a foreign company between two non-residents is not taxable in India.

It is feared that the government shall make necessary and clear amendment in Income Tax Act whereby such transactions for companies operating in India shall be liable to income tax. If such an amendment is made it shall not be in the interest of country as a whole –for its economic development as than it shall have a check on economic activities of foreign companies in India which is generating much employment opportunities in India with highest pay packets too. Further, its financial resources available for ploughing back profits in Indian operations shall be badly affected too. But if government wish to tax it in future by an amendment in Income Tax Act it is better that an exemption may be given with certain conditions like such saved funds –untaxed may be put to use in future within a specified time only –say within three to five years -in India and a separate audit may be compulsory for such a use of funds in India only.

Sometime government makes retrospective amendments to overrule Court decisions which is a bad law and is never justified from any angle /logic. Any amendment must be prospective only. Even such serious type of amendments if any if is to be made than sufficient time gap –few years –must be given to taxpayers to plan their future financial transactions well in advance. Overnight or short span of time can never be justified. Though it is well said that there is no logic in tax laws!

Mahesh Kapasi

CA, M. Com., LL.B., FCA, FICWA, FCS 


B-49, Gulmohar Park,    

New Delhi-110 049

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