Tax World Reacts

The core question was : Whether the transaction was intended to acquire an Indian business or the Cayman Island company? The SC has sought to place importance on business purpose test. Even going by the business purpose test and on practical considerations, it was only an ‘extinguishment of rights’ of varied nature in an Indian business by a foreign company. In this case only Vodafone was before the court. The bonafides of the creation of the structure and interposition of Cayman Island company could have been best judged only in the presence of Hutchison Whampoa and Vodafone could not have stepped into the shoes of Hutchison.  Ofcourse the issues involved were intricate and even though one may justify and welcome the judgment of Supreme Court on several grounds but still some feel that the Court could have  swayed in favour of the Revenue, looking at it from the point of ‘Socialist’ Justice – i.e. the courts could have viewed this a conflict between a private multinational business entity and involvement of huge Revenue implications which could have been utilized for various social welfare schemes. There is also a view that the court overemphasized on FDI aspect and the need for exit route for a foreign investor without tax implications.

Mohan Parasaran
Additional Solicitor General & IT Department Counsel in Vodafone case

At page 32, para 58, while dealing with Azadi Bachao, Honourable CJI writes that it needs to be clarified that McDowell deals with 2 aspects – first regarding validity of the circular issued by CBDT. McDowell never dealt with that issue. At Para 121, page 214 Justice Radhakrishnan writes that CGP was incorporated in 1998 and the same became part of the  Hutchison corporate structure in the year 2005. In the same para it is stated that HTIL, after acquiring the share of CGP in the year 1994, which constituted approximately 42% direct interest in HEL, had put in place various framework agreements, shareholder’s agreements for arranging its affairs so that it can also have interest in the functioning of HEL, alongwith Indian partners. However, at page 257 to page 264 in paras 166 to 177, the sole emphasis is on the fact that income has arisen indirectly. How is this so then?

Even Justice Kapadia has said in para 73, page 63 that the facts of this case show sale of entire investment made by HTIL through a top company – CGP, in the Hutchison structure. The question is – where is the entire investment made? The SC has justified CGP’s structure in para 81, page 75..their Lordships say that the sole purpose of CGP was not only to hold shares in subsidiary companies but also to enable a smooth transition of business which is the basis of the SPA and therefore it cannot be said that the intervened entity ( CGP ) had no business or commercial purpose. The question again is: There is no financial or corporate data available for CGP prior to Feb 11, 2007 right from its incorporation in 1998. Then how such conclusion is arrived at?

The court is completely silent on the effect of Clause 9.5 of SPA which obliges the seller to procure the delivery of 66.98% shares of HEL to purchaser in the event of any breach…

Girish Dave
Former Chief Commissioner & IT Department Counsel in Vodafone case

The judgment is good and it will lend certainy to oversseas transaction where there is an India leg involved. We would be keen to see what SC has to say on applicability of Sec 195 generally to non residents who do not have any presence in India..

Sunil Kapadia
Partner, E&Y

Judgment shows robustness of Indian judiciary, will create confidence for foreign investors...

Harish Salve
Vodafone Counsel

A landmark judgement and while we await the text, this is a very positive development for the country. It is remove barriers to investment and will take away many tax significant uncertainties that investors face.

Dinesh Kanabar
Dy CEO and Chairman, Tax, KPMG

The letter of the law has been  upheld. The next front to be watched now will be the budget. 

F N Subedar
COO Tata Sons

The Hon’ble Supreme Court has delivered a landmark judgment and has again strongly reinforced the primacy of the rule of law in India. We trust the Government will respect and accept the very erudite judgment of the Hon’ble Supreme Court.

Rohan Shah
ELP, Managing Partner

Great outcome..the fact that this matter went upto SC shows that this was a critical matter for Revenue. It demonstrates the Revenue's tenacity in following up on the matter which they believed was correct. It also shows the vibrancy of India's institutions, especially the judiciary. Given the govt's need for revenue collection etc and enormous stakes involved the judiciary remained firm and laid out the law as it deemed fit. 

Rupak Saha
Tax Head, GE India

The judgment has put back the trust in the Indian judiciary system. It is great decision which will augment the foreign investments into India.

Anish Mehta
BDO India, Partner Global tax Services

The judgment has remarkable clarity on the various thorny issues involved and reinforces the confidence that foreign investor can place in the Indian legislature. Also, subject to the fine print, the upholding of the much debated Azadi Bachao decision is in itself a major development.

S Gayathri
Direct Tax Head, Essar Group

1. If there is a structure in place for severa years it cannot be disregarded absence any evidence of subterfuge or sham.

2. It reiterates the principle in Azadi Bachao that if a tax payer chooses a particular mechanism which resuts in tax saving for him you cannot disregard it and if the intent of the Revenue authorities is different then the answer lies in legislative amendment.

3. You cannot create uncertainty by changing your interpretions of a settled position of law

Sudhir Kapadia
Tax Head, Tax E&Y India

Its a good judgment and vindicates the position taken by Vodafone. I think it will give a lot of confidence to foreign investors and businesses in general about the Indian legal system. It should help business confidence in general.

Pranav Sayta
Partner, E&Y India

Taking into consideration two significant points of the ruling that the tax department has no jurisdiction and Sec 9 is a not a look through provision, it can be said that it is a very welcome judgment showing the robustness of the Indian judicial system.

Sanjeev Chaudhary
KPMG, Partner

Excellent outcome. It is a landmark and correct decision. The transaction is not held to be a 'colourable device' and this will bring certainty. It is however, surprising that the Department has been directed to refund Rs. 2500 crores with only 4% interest. It should have been 6%.

T.P. Ostwal
TP Ostwal & Associates

The SC verdict will obviously be a great relief not only for Vodafone and similar transactions which are already under attack but also will send out a very strong positive signal for foreign investments in India. It has also brought to the surface the crucial issue of jurisdiction of Indian tax authorities on offshore transactions and resolved it in favour of foreign investors. A key issue is whether the govt will attempt to neutralise this decision in relation to future transaction as has been proposed in DTC.

Ketan Dalal
Joint Tax Head, PwC, India

The judgement settles controversy which has been long outstanding. The decision also reinforces the confidence in Indian Judiciary, which has given due weightage to the provisions of the law and not swayed by other considerations.

Rahul Garg
Partner, PwC, India

The judgement has reassured that the Indian judiciary is fair. This judgement will boost the confidence of foreign investors investing in India. Consistency in judicial decisions is required. Great decision.

Nihar Jambusaria
Sr. Vice President-Taxation, Reliance Industries Ltd

The ruling reinforces the principle that bonafide transaction structures cannot be frowned upon merely because of tax avoidance. Simplicitor transfer of shares, which results in change of ownership, does not result in transfer of underlying assets as well and hence, it is not permissible to dissect lumpsum consideration received for transfer of shares.

Ajay Vohra
Managing Partner, Vaish Associates Advocates

This decision will give a good impetus to the investment through the Holding Company structure. The judgement will give a lot of relief in other cases where similar notices have been issued by the IT department.

Sudhir Nayak
SKP, Partner

  High impact, path-breaking, in a league of its own. In its landmark judgment the Supreme Court overturned the Bombay High Court judgment to rule  that Vodafone was not required to deduct tax at source since  no taxable income arose in India from the transaction.  With this judgment comes a greater sense of clarity, stability and direction to India Inc.,  Business planning will be more accurate, as corporates will have an accurate idea of  costs.  What is more important is that with this decision, one may well expect the number of cross border mergers and acquisitions to increase. Overall a welcome judgment for reiterating the robustness of the Indian judiciary.

M Lakshminarayanan
Deloitte , Partner

The judgment is a great victory for taxpayers worldwide. It re-emphasizes the long standing principle that taxpayers are entitled to plan their economic affairs within the framework of law. The decision will provide tremendous certainty to investors and boost cross-border M&As, inbound and outbound investments. It is also a lesson to the tax department not to make unjustified high pitched assessments, especially since the tax would have to be returned along with interest, thereby further increasing the fiscal deficit. Such high pitched assessments create budgetary distortions leading to wrong policy choices. It is hoped that the tax department accepts this landmark ruling and does not override it through retrospective legislation.

Nishith Desai
Founder & Managing Partner, Nishith Desai Associates

While internationally economic substance is now preferred over form, the SC decision has followed legal form and substance over economic substance. I believe it is the right decision under the circumstances since this form of international tax structuring to avoid capital gains tax in India has been widely used in the past and tacitly permitted by the Indian Revenue and the courts. Any change in the practice taxing such transactions based on economic substance should be made with prospective effect to provide legal certainty to the taxpayer. It is also a decision influenced by the current national economic interest and not just revenue considerations. 

Professor Roy Rohatgi
Director, Foundation for International Taxation

Certainly, a landmark judgment, addressing several contentious issues in a comprehensive manner. The decision will have far reaching impact on tax planning involving inbound investment, determining the jurisdiction of domestic tax laws and judicial doctrine on tax avoidance. In the years to come, the quantum of tax demand and personality aspects will recede from public memory but the judicial principles will form the bed rock of planning and jurisprudence.

Gokul Chaudhri
BMR Advisors, Partner & Head of Direct Tax Practice

“The question India now faces is whether it thinks its market is so attractive that it can levy a capital gains tax on indirect sales. Many would think this would be poor economics and that it is better to look harder at the taxes levied directly on the local activities."

This quote is based on the editorial feed provided by 

Bill Dodwell
Head of Tax, Deloitte UK

"I am very delighted with this decision. If I was the head of tax at Vodafone and go back in time then i wouldn't have done anything differently."

This quote is based on the editorial feed provided by

R. Mani
Head of Tax, Tata India

"Our major fear has been that other jurisdictions might follow the novel approach of the Indian tax authorities in the Vodafone case. Today’s judgment should be read as a clear endorsement of the view that countries don’t have jurisdiction to tax international transactions based on the location of underlying assets."

This quote is based on the editorial feed provided by 

International Chamber of Commerce

It is heartening to the see the Hon’ble Supreme Court of India rule in favour of certainty. The integrity of the Indian tax legislation and jurisprudence has been upheld by the Supreme court’s decision. The Apex Court has also opined that the Legislature is free to pursue India’s source based taxation by making appropriate amendments in India’s income tax law.

The foreign investor’s dwindling confidence in the Indian tax administration and regulatory system has been restored by the Hon’ble Supreme Court of India’s decision in the Vodafone case. For the investor and tax payers at a large, it is indeed a red letter day which affirms belief in judicial system and checks the overreach of powers by Indian tax authorities.

Aseem Chawla
Amarchand Mangaldas, Partner

I am delighted with this bold decision which reveals the independence,  impartiality and fairness of the Indian Judiciary. The apex court has also observed that the Governmental authorities should legislate laws that can bring about a degree of certainity in the decision making process for parties involved in  international transactions. In fact, the Court has specifically held that section 9 of the current Income Tax  Act does not provide for such transactions to be taxed in India and accordingly no withholding taxes are attraced u/s 195. In case of legitimate transactions one does not need to lift the corporate veil.

It is obvious that Indian Parliament, if they wish to tax such transactions, should specifically provide for such legislation after considering the impact on foreign investments. Without a specific provision, there cannot be any tax on such bonafide international transactions.  

Pallav Gupta
Head of Tax, ITC

"Clearly Vodafone’s judgment has been vindicated so arguably they would not do anything differently. However, there were lessons for all businesses from this case including the need to ensure that potential tax liabilities arising from corporate transactions are clearly allocated for the account of one or other party even if the probability of the tax arising is remote. Alternative structures for similar commercial transactions could also be considered to increase certainty of the post tax outcome. These considerations are especially important in the context of dealing with emerging markets where tax law is rapidly evolving."

This quote is based on the editorial feed provided by 

Ian Brimicombe
Group Head of Tax, AstraZeneca

"The decision gives the Indian tax authorities a bloody nose but I think most Indian tax advisers thought their approach was incorrect in this case and expected this result. Vodafone must be very relieved."

This quote is based on the editorial feed provided by 

Andrew Loan
Macfarlanes, London

"This is indeed a great relief for taxpayers and international investors’ community. This ruling now brings much needed clarity and certainty on cross-border transactions that have an impact on the change of ownership in a third jurisdiction."

This quote is based on the editorial feed provided by 

Sanjay Sanghvi
Khaitan & Co

"The decision will be greeted with relief by those who have used similar offshore holding structures for inbound investments and hopefully puts an end to the uncertainty over particular territorial tax issues which threatened to undermine foreign investment into India. It will be helpful if the Indian tax authorities fully abide by this decision with an immediate change in attitude to allow taxpayers with such structures to finalise open enquiries and disputes.

This quote is based on the editorial feed provided by

Sandy Bhogal
Mayer Brown, London

"It's not only a respite for taxpayers but for the economy as well. FDI may not be challenged now."

This quote is based on the editorial feed provided by 

Gagan Kumar
Archer & Angel

"The decision shows that the use of tax haven companies in the (acquisition) structure attracts interest from tax authorities so hopefully this decision will influence other tax authorities not to pursue similar proceedings."

This quote is based on the editorial feed provided by 

Marc Sanders
VMW Taxand, Netherlands

‘This is a landmark judgment and it does not reflect loss to Revenue or victory for the tax payer but it reiterates faith in Indian judiciary. Clearly, this will provide certainty to the tax payers and will improve investment climate for India’.

Uday Ved
Partner & Head of Tax KPMG