Attorney General advises Tax Department not to prefer an appeal from the verdict of Bombay High Court in Vodafone tax case

The Attorney General of India, Mukul Rohatgi has advised the Income Tax Department against preferring an appeal from the judgment of the Bombay High Court wherein it had ruled in favour of Vodafone Group Plc in the transfer pricing case relating to (alleged) undervaluation of share capital issued by Vodafone India Services Private Limited (Vodafone India) to its Mauritius parent. 

On August 21, 2008, Vodafone India had issued 2,89,224 equity shares of Rs 10 each at a premium of Rs 8,500 per share. However, the Income Tax Department revalued the shares at Rs 53,775 per share claiming that the company had underpriced its shares which led to an income of Rs. 45,000/- (roughly) apiece. It held that the differential in share price ought to be treated as Vodafone India's taxable income through an international transaction. Based on arm's length pricing adjustment (treating the transaction as if it was with an unrelated company) , the tax department held a total shortfall of Rs 1,308.91 crore to be a deemed loan given by Vodafone India to its holding company. Periodical interest income was also held chargeable to tax in the hands of Vodafone India. The Income Tax Department thus accused Vodafone India Services Private Ltd, a unit of the British group, of under-pricing shares in a rights issue to its parent company and demanded tax of about 3,200 crore rupees ($486 million) for two financial years leading up to March 2011.

Challenging the demand, the company had approached the Bombay High Court. However, the Bombay High Court had held in its judgment on October 10, 2014 that issue of shares does not give rise to any income and there can be no question of any transfer pricing adjustment. Transfer pricing is the value at which companies trade products, services or assets among units in different countries, a regular part of business for a multinational company. Rules require all cross-border transactions among group companies to be valued at ‘arm’s length’, or as if the transaction was with an unrelated company. A Bench comprising Chief Justice Mohit Shah and Justice M S Sanklecha had ruled thus: "Issue of shares at a premium by the petitioner to its non-resident holding company does not give rise to any income from an admitted international transaction." 

The verdict of the Bombay High Court was interpreted by experts as a shot in the arm of several other companies such as Nokia, IBM, Shell India, Cairn India and Leighton India contractors among others who are all enmeshed in a similar legal dispute with the Income Tax Department. 

The Income Tax Department was awaiting the advice of the Central Board of Direct Taxes (CBDT) and the Attorney General before taking a decision on preferring an appeal to the Supreme Court of India against the adverse ruling of the Bombay High Court. In thus giving his opinion, the Attorney General has concurred with the opinion of the Chairman of the CBDT against preferring an appeal from the Bombay High Court ruling.

not appeal a Bombay high court judgement which ruled last month in favour of the Indian unit of Vodafone Group Plc. in a Rs.3,200 crore tax dispute—

Read more at: http://www.livemint.com/Politics/5L6D8zMuWCl5op4W95U23H/AG-tells-govt-not-to-appeal-Vodafone-tax-dispute-ruling.html?utm_source=copy

not appeal a Bombay high court judgement which ruled last month in favour of the Indian unit of Vodafone Group Plc. in a Rs.3,200 crore tax dispute

Read more at: http://www.livemint.com/Politics/5L6D8zMuWCl5op4W95U23H/AG-tells-govt-not-to-appeal-Vodafone-tax-dispute-ruling.html?utm_source=copy

not appeal a Bombay high court judgement which ruled last month in favour of the Indian unit of Vodafone Group Plc. in a Rs.3,200 crore tax dispute

Read more at: http://www.livemint.com/Politics/5L6D8zMuWCl5op4W95U23H/AG-tells-govt-not-to-appeal-Vodafone-tax-dispute-ruling.html?utm_source=copy