Home / Politics / Policy /  Govt trying to reduce corporate tax litigations, says revenue secretary

The government is preparing a road map to reduce the number of tax-related litigation, revenue secretary Hasmukh Adhia said on Monday, even as it plans to continue with arbitration proceedings in the cases involving Vodafone Plc and Cairn India Ltd while exploring the option of out-of-court settlements.

An estimated 4 trillion of tax demands are locked up in legal tangle across various courts and tribunals.

Speaking on the sidelines of a conference, Adhia said this roadmap will be over and above the government’s decision to constitute a panel to simplify tax laws. “We are preparing a roadmap separately for dealing with the existing tax litigation," he said.

The tax department is also contemplating increasing the threshold limit for litigation of tax cases to reduce the number of such cases at various levels.

Last week, the government had constituted a committee under retired judge R.V. Easwar to overhaul the Income Tax Act of 1961 to remove ambiguity of clauses to reduce litigation. The committee was asked to suggest modifications to the I-T Act to bring in predictability and certainty in tax laws without substantially impacting either the tax base or revenue receipts.

Other terms of reference of the committee include identifying provisions in the law triggering litigations arising from different interpretations and provisions impeding the ease of business. The panel has also been asked to look at provisions that need simplification in the light of existing jurisprudence.

Adhia, however, ruled out the possibility of this panel looking specifically at the retrospective amendment to tax laws. On the possibility of an out-of-court settlement being looked at in the Vodafone and Cairn cases, he said, “They invoked arbitration and we have responded to it. And if there is offer for out-of-court, the government will consider it."

In an interview to Bloomberg last week, junior finance minister Jayant Sinha said India is open to resolving the dispute with Vodafone out of court. He had added that talks are on and a final resolution depends on what proposals come forward. “We are negotiating in good faith. We’d like to resolve this as quickly as possible," he had said.

The tax department and Vodafone Plc have been locked in a dispute since 2007 over the telecom company’s $11 billion acquisition of Hutchison Essar Ltd, now known as Vodafone India Ltd.

The income tax department had raised a tax demand of more than 20,000 crore, including taxes and penalty, which was struck down by the Supreme Court.

However, the government introduced retrospective amendment to tax laws, making the deal taxable in India. Subsequently, Vodafone International Holdings BV filed for arbitration under the bilateral investment protection agreement between India and the Netherlands.

Cairn Energy Plc has also initiated arbitration under the UK-India investment treaty to oppose a $1.6 billion tax claim relating to transactions carried out to reorganize the company’s structure to prepare for Cairn India Ltd’s stock market flotation in 2007.

On a roadmap to phase out corporate tax exemptions, Adhia said the draft will be out by the end of 2015. Finance minister Arun Jaitley had said in his budget speech that the government will reduce corporate tax rates from 30% to 25% over the next four years while at the same time phasing out corporate tax exemptions.

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