The Finance Bill added the following Explanation:. Any rights in or in relation to an Indian company,. Therefore, as per the amendment , the rights of the Hutchison Hong Kong in Indian company shall be included in the term capital asset under section 2 14 including the right of management and control i. Hence, in this case the capital asset in India has been transferred by Hong Kong to Vodafone. Therefore, as per amendment, in this case, the transfer made by Hutchison Hong Kong to Vodafone is of the rights of Indian company including rights of management and control, as it has by transferring the shares of CGP Mauritius, disposed of or parted with the rights of the Indian company and through indirect means, created interest of Vodafone in Indian company.
It has done this by way of agreement. Transfer of rights take place by way of transfer of shares by a company incorporated in Mauritius. Explanation 2 has been inserted in section 1 to clarify the obligation to comply with section 1 and to make deduction thereunder applies and shall be deemed to have always applied and extends and shall be deemed to have always extended to all persons, residents, non-residents, whether or not the non- resident has: —. Therefore as per amendment, the presence of Vodafone establishment in India or the residence or place of business of Vodafone or its business connection in India is not necessary for deduction under section but Vodafone had sufficient nexus in India.
Retrospective amendments are amendments which have backwards operation i. In India the finance minister has recognized the power to legislate retrospective laws and amendments. But the question as to the constitutional legitimacy of such amendments is a debatable question; though it is held valid in certain situations majorly it is held to be inconsistent.
Thus, as a check on such amendments their use is restricted only to exceptional cases. Vodafone was considered to be one such exceptional case were the amendments introduced in Finance act were given effect from the past date.
It was a revolutionary but a clever move made by the GOI to tax the Vodafone company which faced severe criticism from the global investors.
He criticized the instability shown by our government. He stated that the prosperity of the country depends upon the economic and political institutions of the country, on their stability and transparency.
Hence, though the government is granted the power to legislate laws and amendments with retrospective effect, its scope is restricted to exceptional cases and so before making any retro operative law consideration of its necessity, applicability and effects by the government is vital. Thirumalaisamudram [email protected]. Smith 39 AC as quoted in paragraph 95 of the Judicial Opinion. Your email address will not be published. Post Comment. Notice: It seems you have Javascript disabled in your Browser.
In order to submit a comment to this post, please write this code along with your comment: 1bddb32aae9dc5. User Menu. Income Tax Articles. Vodafone Case Analysis. Income pre requisite for applicability of Section 56 1 : For application of Section 56 of the Act , an income must arise which can be taxed.
Charge and measure of tax entirely different: The tax can be charged only on income and in the absence of any income arising, the application of the measure of ALP to the transfer value does not arise. No relevance of Section 92 2 in the present case: Section 92 2 of the Act deals with a situation where two or more AEs enter into an arrangement whereby they are to receive any benefit, service or facility. JUDGMENT The transaction entered by the Petitioner amounts to transfer of a capital asset and not a transfer of controlling interest ipso facto in a corporate entity and is chargeable to tax in India.
Limitation Of Benefits clause. Tax Residency Certificate In this case, the court held that the treaty and circular will not restrict the Revenue from denying Treaty benefits, when it is proven that the Mauritian company at the time of disposal of shares, made the transaction with intent to avoid tax. Section 9 of the Act The Supreme Court explained that section 9 1 i gathers in one place various types of income that are deemed to accrue or arise in India.
Withholding tax obligations: sections and of the Act The transaction entered into by the companies is between two non-resident entities and was executed outside India. JUDGMENT The tax is levied on the basis of the source and the source is the location where the sale takes and not where the product is derived or purchased from. On bringing the retrospective amendment which states that any income which arises either directly or indirectly by means of or by reason of transfer of assets in India shall be deemed to accrue or arise in India and can be 2.
By means of this verdict certain principles have been established and recognized by the SC including: Principles relating to tax policies and plans The validity of tax avoidance by providing the taxpayers the right to reduce their liabilities to a maximum extent by legitimate arrangement of their income and business affairs provided nothing contrary to such act is specified in the enactments. The establishment of corporate structures by multinational companies for business and commercial purpose.
The application of the principle of lifting of the corporate veil in all transactions done with an objective of evading taxes. Lastly the need for a holistic view or approach when dealing with cases involving companies having made investments in tax neutral countries. It further urges to avoid the misconception that presence of corporate structures in tax free countries is necessarily a scheme for avoiding tax. The international arbitration proceeding was initiated by Vodafone International Holdings B.
Governments should never make tax changes with retrospective 2. But in order to make explanation 5 operational the Finance Act provided certain clarifications: Explanation 6 : For the purpose of this clause, it is hereby declared that- 1. Value of asset — the value of the asset shall be fair market value of such asset without reduction of liabilities, if any in respect of the 3.
Taxation on proportional basis: the capital gains arising out of the transfer of shares of assets located outside India of any company registered outside India will be taxed proportionally as specified in the Explanation 7 provides for certain exceptions; they are as follows: Exemption in case foreign company or entity whose share or interest get transferred directly owns Indian assets Exemption shall be available to the transferor of a share of, or interest in, a foreign entity if the transferor along with its associated enterprises , at any time in the twelve months preceding the date of transfer, a.
Neither holds the right of control or management of such foreign company or entity; b. Nor holds voting power or share capital or interest exceeding 5 per cent of the total voting power or total share capital of such foreign company or entity; Exemption in case foreign company or entity whose share or interest get transferred indirectly owns Indian assets In case the transfer is of shares or interest in a foreign entity which does not hold the Indian assets directly then the exemption shall be available to the transferor if the transferor along with its associated enterprises , at any time in the twelve months preceding the date of transfer- a.
Neither holds the right of management or control in relation to such foreign company or the entity b.
Nor holds any rights in such company which would entitle it to either exercise control or management of the company or entity that directly owns the assets situated in India or c. Impact of the explanations on the final verdict: From explanation 4 added it can be deduced that any income which arises either directly or indirectly by means of or by reason of transfer of assets in India shall be deemed to accrue or arise in India and is taxable in the hands of Hutchison company, Hong Kong.
Impact of the exemptions given in Explanation 7: As the Vodafone case revolves around indirect transfers the second exemption provided is of importance. The Finance Bill added the following Explanation: The following explanation was added to the existing provision Explanation: For the removal of doubts, it is hereby clarified that 1. Any rights in or in relation to an Indian company, 3.
Explanation 2 has been inserted in section 1 to clarify the obligation to comply with section 1 and to make deduction thereunder applies and shall be deemed to have always applied and extends and shall be deemed to have always extended to all persons, residents, non-residents, whether or not the non- resident has: — i A residence or place of business or business connection in India.
Authors:- Vishnupriya. Thirumalaisamudram [email protected] Abirami. Thirumalaisamudram [email protected] Nithya Parvathy. RG Soundarya. Tags: Vodafone tax case. Disallowing finance charges, which were allowed in earlier years, needs re-consideration — Matter remanded back to AO.
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Home Explained Retrospective taxation: the Vodafone case, and the Hague court ruling Retrospective taxation: the Vodafone case, and the Hague court ruling The court has also asked India not to pursue the tax demand any more against Vodafone Group.
What is the case? Setback for policy The ruling in favour of Vodafone signals a setback for the country's retrospective taxation policies. Coronavirus Explained. Click here for more. The industry further witnessed a Compou Income Tax - The Indian government in Budget , amended the Income Tax Act, to retrospectively tax cross-border transactions in which the underlying assets are located in India by which all persons, whether resident or non-residents, having a business connection in India, were required to deduct tax at source, even if the transaction was ex The Finance Ministry had presented a bill to encourage greater overseas investment into India, which is being hailed as a welcome respite for firms that have long inve Income Tax - Apropos, the move to retracts retrospective taxation by the Indian government by Taxation Laws Amendment Bill, is undoubtedly a welcome move that is likely to attract the interest of numerous foreign investors besides several business conglomerates world over.
Retrospective taxation, an evil strongly deprecated and denounced even b Provides that no tax demand shall be raised in the future based on the retrospective amendment made through Finance Act, , for any indirect transfer of Indian assets if the transaction was undertaken before 28th May Provides that the Income Tax - The government introduced the Taxation Laws Amendment Bill, , which seeks to withdraw tax demands made under the Finance Act, retrospective legislation to tax the indirect transfer of Indian assets.
This is a major correction of a tax matter which has adversely affected investor sentiment Income Tax - British telecom giant Vodafone has decided against making a provision in its balance sheet for the over Rs 11, tax claim made by Indian authorities for its deal to acquire stake in Hutchison-Essar Accordingly, we extend the stay for a period of six months from the Vodafone Idea Limited Vs Addl.
In these circumstances, we are of the considered opinion that there is no change in facts and circumstances of the case. Accordingly, we extend the stay for a period of six months or till the disposal o Bill No.
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