If you?re looking for the best example of different arms of the government acting at cross-purposes, look no further than the Vodafone tax matter. The taxman stunned everyone when he didn?t try to tax Hutch for capital gains when it sold its India operations and instead slapped a tax notice on the buyer Vodafone. And when this got turned down at the level of the Supreme Court in a bench headed by Chief Justice SH Kapadia, finance minister Pranab Mukherjee surprised everyone with a retrospective amendment that sought to undo the court judgment. When P Chidambaram was brought in as the finance minister after Mukherjee was elevated to become President, he indicated he would try and fix things, though no specific commitment was given. A committee headed by his ex-advisor Parthasarathy Shome (he?s been appointed advisor once again) recommended against using retrospective taxes?in case such taxes did have to be used, Shome?s report said, it would be better to levy this on the seller (Hutch) and not on the buyer (Vodafone).
While the Shome report, along with other moves made by the new finance minister, seemed to calm investor sentiments a bit, the report has apparently run into some trouble since the ministry has not been able to finalise its views on the report for several weeks now. Indeed, the judicial community was also divided on the matter (see our lead story today). If this wasn?t bad enough, the government has sought yet another review of the SC judgment on grounds the judgment was made by a 3-judge bench and this over-ruled a decision to the contrary by a 5-judge bench. The petition, filed Monday, relates to another Vodafone case, but while asking for a review, the government has said the Kapadia judgment ?require(s) to be overruled, as (it is) in conflict with the decision of a Constitution Bench of 5 judges?. In asking for a review of the Kapadia judgment, the petition reiterates an earlier SC judgment which says ?surely it is high time for the judiciary in India too to part its ways from the principle of Westminster and the alluring logic of tax avoidance ? the proper way to construe a taxing statute ? (is to ask) whether the transaction is a device to avoid tax, and whether the transaction is such that the judicial process may accord its approval to it?. Whatever the Supreme Court makes of this petition, the question is whether the Prime Minister and the finance minister who are trying to restore the faith of investors are aware of what the petition says. Either way, it?s certain to spook investors who had just about started regaining part of their faith in India.
