June 30, 2008
The Vodafone Tax Controversy NDA Commentaries on Court Proceedings
On Monday, June 30, 3008, Senior Advocate Mr. Iqbal M. Chagla, counsel for Vodafone International Holdings BV (“Vodafone”) began the day in court by refreshing the Hon’ble Bombay High Court’s memory of submissions made on Thursday, June 26, 2008 regarding the interpretation of the expression “person” as used in Section 195 of the Income Tax Act, 1961 (“ITA”). The counsel also emphasized before the division bench, consisting of Justice S. Radhakrishnan and Justice A. V. Nirgude, that the instant controversy is a “test case” for the Government and the outcome would have a significant impact on cross-border mergers and acquisitions involving India.
According to the counsel, the provision of the law, as it stood before the impugned retrospective amendment, clearly and unambiguously, excluded the facts of the instant case and contended that no liability as ‘assessee in default’ could be fastened to Vodafone. The power of the Parliament to make retrospective amendments was acknowledged as plenary. However, in the same breath, citing various precedents, it was also submitted that such retrospective amendments must not be unreasonable or burdensome, lest they should be struck down as unconstitutional.
Citing the Supreme Court judgment in D. Cawasji & Co v. State of Mysore2 , it was stated that while it may be open to the legislature… retrospective operation [of taxing statutes] has to be justified on proper and cogent grounds. It was submitted that the explanatory notes to the impugned amendments, when proposed, merely stated that it was sought to clarify the legislative intent of the said provisions, which hitherto left room for interpretation. To this Mr. Chagla submitted that the impugned retrospective amendments were not clarificatory, but substantive in character, since there was no ambiguity in the scope of Sections 191 and 201. Therefore, it was submitted that since insufficient and improper reasons have been accorded for the impugned retrospective amendments, the same should be declared ultra-vires the Constitution of India. He further submitted that the impugned amendments sought to levy additional burden on to assesses, which should “shock the conscience of the court” and that they must be struck down as constitutionally invalid.
The hearing has been adjourned to Tuesday, July 1, 2008, when the counsel for Vodafone is expected to continue with submissions regarding the constitutional validity of the impugned retrospective amendments and thereafter make submissions regarding the chargeability of the capital gains tax.
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