The Supreme Court’s Vodafone verdict holding that Indian authorities don’t have jurisdiction to tax an overseas transaction has huge revenue implications for the government, for it sets a precedent for all such transactions in future.
Little wonder, then, that within hours of the verdict, finance Minister Pranab Mukherjee held consultations with law minister Salman Khurshid and senior officials.
So far, the revenue authorities had been applying the ‘look through’ approach for levying tax on such transactions even when the companies happened to be incorporated in some foreign country. But now the SC has held that it has to use a ‘look at’ approach instead.
Former chief commissioner of Income Tax and Supreme Court advocate Shivakant Jha said: “The Supreme Court has has overlooked operative realities. Transparency is excluded. MNCs are experts in building structures that appear legal.”
“That (Vodafone) transaction has no nexus with the underlying assets in India. In order to establish a nexus, the legal nature of the transaction has to be examined and not the indirect transfer of rights and entitlements in India,” the SC held.
“This will help more funds from outside, but will present an uphill task for the government to know what sort of money is coming, from where,” Jha added.