Vodafone tax case: Govt favours 'out-of-court' settlement

Vodafone tax case: Govt favours 'out-of-court' settlement New Delhi: Within a day of Kapil Sibal taking charge, the Law Ministry on Tuesday gave its go-ahead for a conciliatory out-of-court settlement of over Rs 11,000 crore tax dispute with British telecom major Vodafone, marking a change in its stance.

The Law Ministry sent its approval of the proposal to the Finance Ministry, displaying a sense of urgency in the government to resolve the controversial issue which is bound to have implications on foreign investments.

Telecom Minister Sibal, who took additional charge as Law Minister yesterday, revived the case by seeking a fresh opinion of Attorney General G E Vahanvati on the issue.

Vahanvati, who had earlier disfavoured such a step, immediately gave his nod.

Ashwani Kumar, who quit as Law Minister on Friday last, had disfavoured such a move and AG had concurred, sources said.

Vahanvati gave his fresh opinion in the light of Finance Ministry clarification that the conciliation proposal would not bypass or alter the tax liability under the Income Tax Act, they said.

The Finance Ministry has also said that any agreement reached with Vodafone would have to be approved by the Cabinet and finally by Parliament as an amendment will have to be made to the Income Tax Act, the sources said.

Ashwani Kumar had opposed conciliation, saying the Executive cannot overturn an Act of Parliament. The AG had then concurred with Kumar's view.

After AG's first opinion, the Finance Ministry had given clarification to the Law Ministry, the sources said.

Vodafone is facing the tax liability of over Rs 11,217 crore for purchase of Hong Kong-based Hutchison Whampoa's stake in Indian telecom business Hutchison Essar in 2007.

Although the British telecom giant had won a tax case in the Supreme Court (January 2012), the government had amended the Income-tax Act, 1961 with retrospective effect to undo the ruling.

Following that, the Income Tax Department issued a letter in January to Vodafone International Holdings BV stating that the company is required to pay tax demand of about Rs 11,217 crore along with interest.

The Vodafone dispute was seen as having a discouraging impact on foreign investors' sentiments.

While taking over as Law Minister yesterday, Sibal had told reporters that he would work to ensure that "legal processes and procedures should not be an impediment to economic growth, but must fuel it."

Sources said by agreeing to initiate the conciliation process, Finance Minister P Chidambaram wanted to send a positive signal to investors.