End to Vodafone tax row in sight as interest, penalties on retrospective tax may go

End to Vodafone tax row in sight as interest, penalties on retrospective tax may go

28 SEP, 2012, 07.39AM IST, DEEPSHIKHA SIKARWAR,ET BUREAU

The country's apex direct taxes body is likely to moot a proposal to exempt companies caught in the controversial retrospective tax net from paying interest and penalties, potentially paving the way for a settlement with Vodafone in the multi-billion-dollar tax dispute.

A senior I-T official said the Central Board of Direct Taxes (CBDT) is considering issuing a circular to waive off interest and penalty on the outstanding tax liabilities of such 'taxpayers'. "A proposal to this effect is likely to be taken to the finance minister for final clearance," he said. The official said a decision will be taken by Finance Minister P Chidambaram after the Parthasarthi Shome-headed panel, examining the retrospective tax amendment issue, submits its report on Monday.

While the waiver will benefit at least half-a-dozen companies, the biggest beneficiary will be Vodafone. Under the retrospective tax amendment introduced this year, the UK-based telecom company is liable to pay over. Rs 20,000 crore to income-tax authorities for not withholding tax on the $11.2-billion payment it made to Hutchison Whampoa for acquiring Hutchison Essar in 2007 through an overseas transaction. If the interest and penalty are deducted, the tax liability will drop to . Rs 8,000 crore.

CBDT, under Section 119 (sub-section 2a and 2b) of the I-T Act, and Section 234 B (d) dealing with waiver of interest, has the power to grant relief to a class of taxpayers. The board has in the past used these powers to waive penalty and interest, and allowed just the payment of tax in installments to remove hardship due to any retrospective change in tax law.

Government has Softened its Stand

For instance, during Chidambaram's stint as finance minister in UPA's first term, when Section 80 HHC was amended in 2005 and applied retrospectively from 1998-99, the CBDT had issued a circular to exempt interest and penalty and also allowed taxpayers to pay the amount over five years.