NEW DELHI: Former Chief Justice of India RC Lahoti has been appointed as arbitrator in the high-profile tax dispute with the British telecom operator Vodafone amid increasing expectation that the new Narendra Modi-led government may scrap the controversial retrospective amendment that led to the tussle.
“The government’s arbitrator has been appointed,” a finance ministry official told ET.
An arbitrator was required to be appointed since Vodafone had served a notice to the Indian government for international arbitration under the India-Netherlands bilateral investment protection and promotion agreement, apprehending a 20,000- crore tax demand on its buyout of Hutchison Essar in 2007.
Both sides will now appoint a third arbitrator. Besides, the Indian side will also have to nominate its counsel, who will present the government’s case to the arbitrator. Once the third arbitrator is appointed, both sides will finalise the timelines and logistics of the arbitration proceedings, another ministry official said, also on the condition of anonymity.
The new government has promised a non-adversarial tax regime and it is expected that the budget will make the amendment applicable prospectively.
Former Union finance minister and now President Pranab Mukherjee had introduced amendment in Section 9 of the Income-tax Act, 1961 in the 2012-13 budget retrospectively from the day of the commencement of the Act, sending a shockwave through the investor community.
The amendment was prompted by an adverse Supreme Court decision that overseas transactions involving Indian assets could not be taxed. Indian tax authorities had sought to impose tax on Vodafone for failing to deduct tax on its $11-billion payment to Hutchison Telecommunications International for the acquisition of Hutchison Essar. Vodafone moved court saying that the deal was done overseas and could not be taxed, and eventually got a favourable verdict from the Supreme Court.
Soon after the amendment was pushed through, Vodafone served a notice for international arbitration. Though government attempted conciliation, the company’s insistence on inclusion of another tax dispute relating to transfer pricing derailed the talks.
The Union cabinet in April decided to withdraw the offer of conciliation.
(Source: The Economic Times, June 18, 2014)