Transfer pricing laws in India are in much limelight for the past few years. The finance ministry of India is now in the process of devising clear guidelines for contentious transfer pricing cases, especially for handling the grey areas.
Similarly, international transactions and arm’s length price are also under scrutiny of Income Tax Department of India. The Competition Commission of India (Procedure in Regard to the Transaction of Business Relating to Combinations) Regulations, 2011 have also been formulated by the Competition Commission of India in 2011 to regulate anti competition combinations.
In the past, the IT department has launched various proceedings against the telecom service providers of India. For instance, Nokia was accused of violating the transfer pricing laws of India. Even a forensics analysis of Nokia’s computers used to download software in India has been ordered.
Similarly, Shell India received a transfer pricing order from IT authorities of India. A transfer pricing order was also issued against Vodafone India. Reacting to the same Vodafone India threatened to invoke the arbitration proceedings against Indian government.
Meanwhile, Vodafone challenged the transfer pricing order at the Bombay High Court. The Bombay High Court on Friday dismissed the plea of Vodafone India and clarified that transfer pricing authorities of India have the jurisdiction to investigate suo moto any cross-border transactions.
The Court said that Vodafone India has the option to go for an alternative remedy like Income Tax Appellate Tribunal (ITAT). The Court also directed the tax department not to serve an order or final assessment notice till November 30. The Bombay High Court’s decision on Friday focused solely on procedure, like jurisdictional issue, and not on the merits of the Vodafone case.
Vodafone’s major relief point is the judgement given by the Supreme Court of India in its favour. The only option left for India was to formulate and enact a validation law that can cure the defects pointed by the Supreme Court while adjudicating the Vodafone’s case. The government exactly did the same thing by amending 50-year-old tax laws enabling it to make retroactive tax claims on long-concluded corporate deals.
The constitutionality of such retrospective validation law is still to be analysed. However, this retrospective amendment has once again brought to life the dead Vodafone taxation controversy.