It’s strange that the income-tax department has levied a tax liability of Rs 32,320 crores inclusive of interest/penalties, on Hong Kong’s Hutchison Telecommunications for the capital gains it made 10 years ago after the sale of its 67 per cent stake in Hutchison Essar, now Vodafone India. This action could cause a lot of embarrassment while Prime Minister Narendra Modi’s government is wooing foreign capital and seeking its participation in the “Make in India” programme to make India a manufacturing hub. This retrospective tax demand, often called tax terrorism, could also hurt the government’s efforts in furthering the ease of doing business. A stable tax regime was one of the highlights of this initiative.
As the I-T department is a key arm of the government, perhaps the PM could look into it and find a solution before it snowballs into a bigger issue. The exigencies of the I-T department are understandable as it has to boost its coffers. But to act in a regressive manner could only hurt its image and that of the government. There must be other ways to raise revenue without retrospective tax disputes with companies. Even the Supreme Court had ruled that the Hutchison case transaction was not taxable, to sidestep which the government amended the law in 2012 with retrospective effect to pursue Vodafone. In fact, the I-T department is already locked in a tax tussle with two entities as its earlier levy of over Rs 20,000 crores on Vodafone is now before international arbitration in London.
