Law has to be given effect to: CBDT chairman on Cairn, Vodafone international arbitration cases

NEW DELHI: The government is “examining” the recent
international tribunal order passed against India in the high-profile
Energy plc retrospective tax case as
chairman P C Mody said the law in force at that point of time has to been given full effect to.

He said while the government has filed an appeal after a similar verdict was delivered against the country in the
Vodafone case, it will soon come out with its decision to go in for an appeal or not in the
Cairn case.

“We have already taken a decision in the case of
Vodafone to go in for a further appeal. So far as
Cairn is concerned, we are examining the issue and very soon we will come out with a decision
on that,” the
CBDT chief told PTI during an interaction.

He was asked if the ground of ‘taxation being a sovereign function of the government’ was used to file an appeal by India in the
Vodafone case.

“Apart from sovereign function, that (retrospective taxation) was the law at that point of time…so that has to be carried out or given full effect to,” he said.

The Central Board of Direct Taxes frames policy for the Income Tax Department.

India, in December last year, has been ordered to return up to USD 1.4 billion to
Cairn Energy of the UK after the government lost an
arbitration over the retrospective levy of taxes.

The three-member tribunal, which also comprised a nominee of the Indian government, unanimously ruled that India’s claim of Rs 10,247 crore in past taxes over a 2006-07 internal reorganisation of
Cairn’s India business was not a valid demand.

The tribunal ordered the government to return the value of shares it had sold, dividends seized and tax refunds withheld to recover the tax demand.

Few months earlier, British telecom giant
Vodafone Group plc had similarly won an
arbitration against the Indian government over a demand for Rs 22,100 crore in taxes using retrospective legislation.

India has challenged this verdict before a court in Singapore.

The Income Tax Department had stated that
Vodafone’s USD 11-billion acquisition of 67 per cent stake in the mobile phone business owned by Hutchison Whampoa in 2007 was designed to avoid capital gain tax in India and imposed a tax demand, which was rejected by the Supreme Court in 2012.

The Union government in May, 2012 had passed the Finance Act that amended various provisions of the Income Tax Act of 1961 with retrospective effect to tax any gain
on transfer of shares in a non-Indian company which derives substantial value from underlying Indian assets.