Vodafone wins arbitration against India in International Court

Background and Facts:

• Revenue department served a notice to Vodafone, alleging failure to deduct withholding tax from Hutchison Telecommunications International Ltd.
• Vodafone challenged this in the Supreme Court, which ruled in favour of Vodafone, saying the transaction was not taxable in India and so the company had no obligation to withhold tax.
• The Indian government changed Law via retrospective amendments, raised a Capital gain tax demand of Rs. 22,100 cr. (inclusive of interest & penalties amounting to Rs. 14,110).
• Vodafone challenged this decision under the Netherlands-India bilateral Investment treaty and initiated arbitration proceedings against India.

Assessee’s Contention before Permanent court of arbitration:

• The Company contented that the Indian government held decision to retrospectively impose capital gain tax on its acquisition of Hutchison Whampoa, despite the fact that the Supreme Court had already ruled in favour of the concerned company still the government changed the rules to enable it to tax deals that had already been concluded. 

Some key highlights of today speech have been mentioned hereunder:

• As per Prime Minister Modi the taxpayer is now assured of fair, courteous and rational behaviour. Taxpayer shall be provided with a fair and just system for tax compliances.
• The concept of faceless assessments and taxpayer charter shall be initiated from today, this step will help to reduce government interference, bureaucratic discretion and further, will increase the trust in the taxpayer and reward the honest tax payer.
• In Budget Speech of 2020 our Hon’ble Finance Minister Nirmala Seetharaman has promised to introduce faceless appeals soon and in today’s speech Prime Minister said that the faceless appeals shall be initiated from 25^th September 2020.
• Tax scrutiny can be assigned to any officer in any city in India to ensure that it doesn’t matter who the taxpayer is or who the assessee is. This will reduce the chances of corruption since the possibility of familiarity or influence will be zero.
• CBDT has clarified today that all assessment orders shall be passed by National e-Assessment Centre through faceless assessment scheme, 2019, except in following cases where:
  • Cases are assigned to Central Charges.
  • Cases assigned to International Tax Charges

Decision held by International Arbitration Tribunal:

• The Tribunal, in its ruling, said the government’s demand is in breach of “fair and equitable treatment”.
• The Tribunal held that the Indian government’s decision to impose tax retrospectively on Vodafone is in breach of the investment treaty agreement between India and the Netherlands.
• The Tribunal further directed India to pay 4.3 million pounds ($5.47 million) to the company as compensation for its legal costs.

Outcome:

CBDT vide press release dated 25.09.2020 intimated that, it will be studying the award and all its aspects carefully in consultation with its counsels. After such consultations, the Government will consider all options and take a decision on further course of action including legal remedies before appropriate forum. 

-Anjali Tariyal
Associate
SW India