Victory for Vodafone in Indian Supreme Court: the final conclusion or another twist in the tale? | Practical Law

Victory for Vodafone in Indian Supreme Court: the final conclusion or another twist in the tale? | Practical Law

This chapter considers the Indian Supreme Court's much-awaited judgment in the landmark tax case of Vodafone International Holdings BV v Union of India & Anr, as well as subsequent proposed amendments to the law.

Victory for Vodafone in Indian Supreme Court: the final conclusion or another twist in the tale?

by Aditi Mukundan and Mansi Seth, Nishith Desai Associates
Law stated as at 01 Mar 2012India
This chapter considers the Indian Supreme Court's much-awaited judgment in the landmark tax case of Vodafone International Holdings BV v Union of India & Anr, as well as subsequent proposed amendments to the law.
This article is part of the PLC multi-jurisdictional guide to Tax on Transactions. For a full list of jurisdictional Q&As visit
On 20 January 2012, the Indian Supreme Court delivered its much-awaited judgment in the landmark case of Vodafone International Holdings BV v Union of India & Anr (Civil Appeal No.733 OF 2012 (arising out of S.L.P. (C) No. 26529 of 2010)) (Vodafone). A three judge bench comprising the Chief Justice of India, Justice S H Kapadia, Justice K S Radhakrishnan and Justice Swatanter Kumar handed down the 273 page verdict. In it, they declared that the taxpayer, Vodafone International Holdings BV, a company resident in The Netherlands (Vodafone), was not liable to be taxed in India. Justice Radhakrishnan noted that the Indian tax authorities' demand for "capital gains tax, in my view, would amount to imposing capital punishment for capital investment since it lacks authority of law".
The controversy surrounded the sale by Hutchison Telecommunication International Limited (HTIL) of its shareholding in CGP Investments (CGP), a Cayman Islands company, to Vodafone. Given that CGP indirectly held (through Mauritian downstream subsidiaries and call options in India) a 67% interest in an Indian company Hutch Essar Limited (HEL) (now Vodafone Essar Limited (VEL)), the Indian tax authorities (Revenue) sought to tax the transfer of CGP shares from HTIL to Vodafone; an offshore transaction between non-resident companies.
The dispute started in 2007 and, since then, has been closely followed by the Indian and international community given its impact on nearly all cross-border transactions involving India. The Supreme Court's decision is significant as it provides much needed certainty and clarity in the Indian tax regime, which is a welcome respite for the many foreign (and Indian) investors who perceive the growing Indian economy as an attractive jurisdiction to set up business.
With the Supreme Court's decision, it seemed the controversy was finally laid to rest. However, Vodafone's victory was short lived. On 16 March 2012, the Finance Minister of India put forward the Finance Bill 2012 (Budget), which proposed amendments to the law; once implemented these may give the Revenue an opportunity to pursue Vodafone again.
This chapter examines the Supreme Court's decision in Vodafone, in particular:
  • The transaction itself.
  • The lead up to the Supreme Court action.
  • The legal principles underpinning the Supreme Court's findings.
The chapter also considers the potential impact of the Budget's proposals.

The transaction

In 2007, Vodafone acquired CGP from HTIL, also based in the Cayman Islands. The Hutchinson Group (based in Hong Kong) had moved into the Indian telecommunications (telecom) market in 1992. The majority share capital of HEL (now VEL) was under the direct or indirect control of the Hutchinson Group. CGP held a number of underlying subsidiaries in Mauritius that, with certain Indian companies, ultimately held a roughly 67% stake in HEL, one of the largest players in the Indian telecom industry. This included certain call and put options, which amounted to 15% of HEL's shareholding. On 11 February 2007 a share and purchase agreement (SPA) was entered into between Vodafone and HTIL to acquire CGP (see box, The sale of CGP to Vodafone). This agreement was completed on 8 May 2007.

Lead up to the Supreme Court action

In August 2007, the Revenue issued show cause notices to Vodafone in an attempt to tax the above transaction, which it felt should have been withheld by Vodafone before making payments made to HTIL (the taxes amounted to US$2.1 billion (as at 1 March 2012, US$1 was about EUR0.7)). In this regard, Vodafone approached the Bombay High Court and then the Supreme Court (in 2009). The matter was remanded to the Revenue to formally decide on the issue of whether it had jurisdiction to proceed against Vodafone, along with directions that if the Revenue determined that the transaction was subject to tax in India, Vodafone could directly approach the Bombay High Court.
In May 2010, having scrutinised innumerable transactional documents, the Revenue issued its order establishing that it had the necessary jurisdiction to proceed against Vodafone. In response, Vodafone approached the Bombay High Court challenging the Revenue's jurisdiction to pursue an offshore transaction of this nature, having absolutely no nexus with the territory of India. However, the Bombay High Court dismissed Vodafone's petition by stating that it had sufficient nexus with the territory of India for the Revenue to initiate proceedings against it. A special leave petition was then filed in the Supreme Court to appeal against the decision of the Bombay High Court.

Legal principles underpinning the Supreme Court's findings

A number of legal issues were dealt with in the Supreme Court's deliberations, including:
  • Piercing the corporate veil.
  • Tax avoidance and tax planning.
  • The use of the Mauritius route for investment.
  • Whether section 9 of the (Indian) Income Tax Act 1961 (Act) is a look through provision.
  • The transfer of HTIL's property rights by extinguishment.
  • Withholding tax obligations: sections 195 and 163 of the Act.

Piercing the corporate veil

In general, companies are considered to be economic and legal entities that are independent from the company's shareholders or participants. This principle is the foundation on which both corporate and tax laws rest, and was applied in Vodafone.
In relation to group holding structures, which are common across various jurisdictions, a subsidiary and its parent are treated as being totally distinct taxpayers. From a tax perspective, despite the actual degree of economic independence between a subsidiary and a parent, each company is subject to taxes on profits it derives on a standalone basis.
The Supreme Court has unequivocally held that it is the task of the court to ascertain the legal nature of the transaction and, while doing so, it must look at the entire transaction as a whole rather than dissecting the elements of that transaction. When looking at all the facts and circumstances surrounding a transaction, it then determines whether the transaction is a colourable device primarily structured to evade taxes, which would justify piercing the corporate veil, or a genuine business transaction.
Applying the above principles, the Supreme Court concluded that every strategic foreign direct investment (FDI) into India should be seen in a holistic manner and that the onus is on the Revenue to identify the scheme and its dominant purpose. When determining the transaction's dominant purpose, the following factors should be considered:
  • The concept of participation in the investment. (Essentially, the Supreme Court is referring to whether the holding structure was set or incorporated with a view to making investments and undertaking any business or commerce, or whether the participation was made with the ultimate motive of exiting at a predetermined time or on the occurrence of an event.)
  • The length of time for which the holding structure exists.
  • The period of business operations in India.
  • The generation of taxable revenues in India.
  • The timing of the exit; and the continuity of business on that exit.
In Vodafone, the Supreme Court held that the facts of the case should be looked at in a holistic manner since the consideration was paid on a consolidated basis. Applying this doctrine, the Supreme Court held that the dominant purpose in Vodafone was to transfer the CGP shares, as opposed to transferring the rights in HEL (situated in India).

Tax avoidance and tax planning

The Supreme Court in Vodafone discussed the difference between tax evasion and tax planning at length, and offered solace to the taxpayer by clearly stating that while it is the obligation of every citizen to pay taxes without resorting to subterfuges; it cannot be said that all tax planning is illegal, illegitimate or impermissible. In this context, the much discussed debate over the correctness of the decision in Union of India v Azadi Bachao Andolan ((2004) 10 SCC 1)) and its departure from McDowell and Co Ltd v CTO ((1985) 3 SCC 230) on the specific issue of tax avoidance has been settled.
The Azadi case recognised the use of the Mauritius route to invest in India and upheld the validity of the Central Board of Direct Taxes (CBDT) circular (Circular No. 789 dated 13 April 2000). As a result, a valid tax residency certificate (TRC) issued by the Mauritian authorities was sufficient to impart the benefits of the India-Mauritius Tax Treaty (Treaty), and the capital gains accruing to a Mauritian resident was subject to tax only in Mauritius.
In the McDowell case, the Supreme Court held that tax planning may be legitimate provided it is within the framework of the law; however, colourable devices cannot be a part of such tax planning. On the specific point of colourable devices, Justice Chinnappa Reddy made several observations on tax avoidance and the need to depart from the "Westminster rule" (if a document or transaction is genuine, the court cannot go behind it to some supposed underlying substance), with which the majority bench concurred.
The Revenue has argued that the Azadi ruling needs to be overruled as it failed to read McDowell in its entirety, and has emphasised Justice Reddy's observations that, in certain circumstances, tax avoidance should be brought within the tax net.
In Vodafone, the Supreme Court clarified that Justice Reddy himself states that he agrees with the majority (in McDowell) and his observations extend only to artificial and colourable devices. As a result, it is erroneous to understand his comments to mean that all tax planning is illegal, illegitimate or impermissible. Vodafone has clarified that in cases of treaty shopping and/or tax avoidance there is no conflict between McDowell and Azadi.

Use of Mauritius route for investment

While the Treaty was not applicable in the Vodafone case, the Supreme Court discussed it in the context of the validity of the Azadi case and the conclusiveness of a TRC. The issue of the Treaty is particularly topical at the moment, given the aggressive approach the Revenue has adopted towards it, which is in turn giving rise to uncertainty among foreign investors. Needless to say, an unpredictable tax and regulatory environment can potentially repel foreign investment and business.
In a welcome move, the Supreme Court made important observations in Vodafone that will instil confidence in potential foreign investors. In particular, it discussed the Treaty with specific reference to limitation of benefits (LOB) clauses and the TRC.
LOB clause. A LOB clause essentially lays down criteria, which, if not satisfied by a taxpayer (resident of either contracting state), disentitle that taxpayer from availing itself of the benefits of a tax treaty. Article 24 of the India-US tax treaty is an example.
In Vodafone, Justice Radhakrishnan (in his concurring judgment) held that in the absence of a LOB clause in the Treaty, and in light of the existence of CBDT Circular No. 789 of 2000 and a TRC certificate, the Revenue cannot at the time of sale, disinvestment or exit from FDI in India, deny benefits to Mauritian companies by stating that the FDI was routed through a Mauritius company from somewhere else.
The court agreed that in the absence of a LOB clause in the Treaty, Mauritian special purpose vehicles (SPV) should be allowed treaty benefits. The Supreme Court agreed with the contention that apart from the Treaty, which provides for a tax exemption in the case of capital gains and does not levy tax on dividends paid by a Mauritian company or subsidiary to its foreign shareholders or principal, there is no other reason for funds to be invested from or through Mauritius. Justice Radhakrishnan observed that "it is well known that Mauritius is incapable of bringing FDI worth millions of dollars into India". Further, he noted that it cannot be assumed that the Indian government and the Revenue are unaware that the amount of FDI that comes from Mauritius actually originates from global investors situated outside Mauritius.
TRC. Justice Radhakrishnan noted that the question remained of whether a TRC issued by foreign tax authorities (such as the Mauritian authorities) is so conclusive that the Revenue cannot pierce the corporate veil and look at the substance of a transaction. In Vodafone, the court held that the Treaty and the CBDT Circulars would not preclude the Revenue from denying Treaty benefits, if it could be established on the facts that the Mauritian company was interposed as the owner of shares in India, at the time of disposal of those shares to a third party, solely with a view to avoiding tax (that is, if the transaction had no commercial substance).
In the Vodafone case, the Supreme Court concluded that the sale of CGP was not aimed at evading taxes in India as the same end could have been achieved if the shares of HEL had been sold by the downstream subsidiaries in Mauritius (see box, The sale of CGP to Vodafone) for a valid business purpose.
The Supreme Court maintained a fine balance in Vodafone by stating that, on the one hand, no court will recognise a sham transaction or colourable device designed to evade tax as genuine, but on the other hand, it cannot be expected that the Treaty recognise FDI and foreign institutional investment only if it originates from Mauritius, and not from investors residing in third countries who incorporate a company in Mauritius.
The court also referred to the memorandum of understanding (MOU) signed between India and Mauritius, the object and purpose of which is to track down transactions tainted by fraud and financial crime, rather than to target legitimate transactions. The court noted that Mauritius is a clean jurisdiction to route investments into India and, provided the transaction is not found to be a sham or colourable device that is designed to evade tax, using the Mauritius route to invest in India is valid.

Section 9 of the Act: a look through provision?

In Vodafone, the Revenue's argument to tax the capital gains arising from the transaction was twofold:
  • HTIL, under the SPA, directly extinguished its property rights in HEL and its subsidiaries.
  • Without prejudice to the above, the Revenue argued that even if the transaction did not culminate in the extinguishment of property rights in HEL, in any event, income from the sale of CGP shares would fall within section 9 of the Act (dealing with income deemed to accrue or arise in India), which provides for a "look through". So even if control over HEL was transferred as a result of the transfer of the CGP shares outside India, it would be covered by section 9 of the Act.
Rejecting the Revenue's argument altogether, the Supreme Court explained that section 9(1)(i) gathers in one place various types of income that are deemed to accrue or arise in India. It includes: "All income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situate in India".
The Supreme Court noted that the words "directly or indirectly" in section 9(1)(i) of the Act refer to the income and not the transfer of a capital asset (property). It held that to apply the words "directly or indirectly" to the transfer of a capital asset (such as HEL) "would amount to changing the content and ambit of section 9(1)(i). We cannot re-write section 9(1)(i). The legislature has not used the words indirect transfer in section 9(1)(i)." It noted that, "if the word indirect is read into Section 9(1)(i), it would render the express statutory requirement of the 4th sub-clause in section 9(1)(i) nugatory" (that is, of no importance).
The court also made reference to the fact that the Direct Taxes Code Bill 2010 (DTC) proposes the taxation of offshore share transactions, which leads to the inference that indirect transfers are not presently covered by section 9(1)(i).

Transfer of HTIL's property rights by extinguishment

In Vodafone, the primary argument advanced on behalf of the Revenue was that the SPA between Vodafone and HTIL, commercially construed, transfers HTIL's rights of control and management, which are property rights, over HEL and its subsidiaries. On the extinguishment of these rights, a capital asset situated in India was transferred to Vodafone.
At the outset, the court explained that the case concerned the sale of shares and not the sale of assets. Adopting the "look at" approach (as opposed to the "dissecting" approach) the court held that the facts of the present case must be viewed holistically. Given that the Hutchison structure had been in place since 1994, paying income tax in India and being in the telecom business, it could not be concluded that the transaction between Hutchison and Vodafone was a sham. The court substantiated its findings by relying on the conceptual difference between a preordained transaction, which is created for tax avoidance purposes, and a transaction undertaken to invest in India (as in the present case).
To determine what a capital asset is under the Act, the court held that HTIL's right to direct a downstream subsidiary in its manner of voting (if this can be construed as a right), reflected HTIL exercising its influence or persuasive position rather than having an actual power. The Revenue argued that the following rights were indirectly transferred to Vodafone by HTIL, all of which were situated and therefore taxable in India:
  • Right to a direct/indirect equity interest in HEL.
  • Right to do telecom business in India.
  • Right to jointly own and avail itself of telecom licences.
  • Right to use the Hutch brand.
  • Right to appoint/remove directors on HEL's board.
  • Right to exercise control over HEL's management and affairs.
  • Right to take part in HEL's investment, management and financial decisions.
  • Right over assigned loans and advances used for business in India.
  • Right of subscribing at par value in certain Indian companies.
  • Right to exercise call options with Indian companies.
  • Right to control premiums.
  • Right not to compete against HTIL within the Indian territory.
Justice Radhakrishnan pointed out that while the transaction resulted in the controlling interest in HEL being transferred to Vodafone, it could not be dissected to enable the Revenue to tax it in India, particularly as a single consolidated price was paid. He reiterated that the controlling interest in HEL could not be transferred without a corresponding transfer of the shares. In addition, all loan and debt obligations were transferred or assigned offshore, falling outside the ambit of the capital gains tax net in India. The court also held that non-compete rights and the use of the Hutch brand were not property rights and so could not be subject to tax in India.

Withholding tax obligations: sections 195 and 163 of the Act

An important question that is often raised in India relates to withholding taxes in transactions between non-residents. This is particularly so since the Bombay High Court's ruling in the case of Aditya Birla Nuvo (Writ Petition No. 730 of 2009 & No. 345 of 2010 and No. 1837 of 2009 and No. 38 of 2010; TS – 346 – HC – 2011 (Bom)). In that case, the Bombay High Court held that the income (capital gains) accruing or arising in India to a US company on the transfer of a capital asset situate in India would be income deemed to accrue or arise in India to the US company. This income could be assessed in the hands of the US company (or in the hands of the Indian seller, as an agent of the non-resident under section 163 of the Act). In this case, the Mauritius wholly-owned subsidiary of the US company was the legal owner of the shares and the Indian seller had obtained a nil withholding certificate from the Revenue.
Withholding tax provisions require that any person responsible for making any payment to a non-resident, which is chargeable to tax, must deduct from such payment the income tax at source (section 195, Act). The Revenue relied on this provision to argue that in Vodafone, a non-resident entered into a transaction giving rise to income chargeable to tax in India. It argued that, as a result, the necessary nexus of that non-resident with India was established and the machinery provisions governing the collection of taxes in respect of such chargeable income then operate. In addition, the Revenue argued that once chargeability is established, no further nexus requirement must be satisfied to attract the application of the provision.
The Revenue argued that Vodafone did have a "presence" in India, because:
  • It was a joint venture (JV) partner and held a 10% equity interest in Bharti Airtel Limited.
  • Of that 10% equity interest, 5.61% shares were held directly by Vodafone itself.
  • Vodafone also had a right to vote as a shareholder of Bharti Airtel Limited and the right to appoint two directors to the board of directors of Bharti Airtel Limited.
  • Vodafone had entered into a term sheet agreement with Essar Group on 15 March 2007 to regulate the affairs of VEL. This was restated by a fresh term sheet agreement of 24 August 2007, which was entered into with Essar Group and formed a JV partnership in India.
  • Vodafone itself applied for Foreign Investment Promotion Board (FIPB) approval, and was granted such approval on 7 May 2007.
According to the Revenue, Vodafone could be treated as a representative assessee of HTIL and, as a result, a notice under section 163 of the Act was validly issued to Vodafone.
In response, Vodafone argued that "tax presence" must be viewed in the context of the transaction that is subject to tax and not with reference to an entirely unrelated matter. It also stated that a "tax presence" might arise where a foreign company, on account of its business in India, becomes a resident in India through a permanent establishment (PE) or the transaction relates to the PE (which did not occur in this case).
The Court agreed with Vodafone's submissions and explained that the requirement to deduct tax is not limited to the deduction and payment of tax. It requires compliance with a host of statutory requirements, like section 203 of the Act, which obliges the taxpayer to do such things as issue a certificate for the tax deducted, file a tax return and obtain a "tax deduction and collection number". If a person fails to deduct tax they can be treated as an "assessee in default", which attracts penalties for the failure to deduct tax at source (section 201, Act).
The Supreme Court highlighted that while the Indian Constitution recognises the concept of extra-territoriality, section 195 does not have extra-territorial operation. It held that a literal construction of the words "any person responsible for paying" to include non-residents within the ambit of section 195 would lead to absurd consequences.
The court found that a reading of other relevant provisions of the Act showed that the intention of the Parliament was to apply section 195 only to residents who have a tax presence in India. This view is also supported, in similar situations in other countries, when tax was sought to be imposed on non-residents (Ex Parte Blain; In re Sawers (1879) LR 12 ChD 522 at 526, Clark (Inspector of Taxes) v Oceanic Contractors Inc. (1983) 1 ALL ER 133, Agassi v Robinson [2006] 1 WLR 2126).
In Vodafone, the transaction was between two non-resident entities via a contract executed outside India. Consideration was also passed outside India. The court held that when a payment is made between two non-residents situated outside India, such a transaction has no nexus with the underlying assets in India. To establish a nexus, the legal nature of the transaction must be examined and not the indirect transfer of rights and entitlements in India. As a result, Vodafone was not legally obliged to respond to the section 163 notice issued, which relates to the treatment of a purchaser of an asset as a "representative assessee".

Implications of the Budget

In his budget speech, the Indian Finance Minister, Pranab Mukheerjee, declared that "I have to be cruel to be kind", possibly an appropriate disclaimer in light of the draconian provisions sought to be introduced.
The changes as proposed in the Budget reflect a calculated move on the part of the government to disregard the Supreme Court's interpretation in the Vodafone decision. More surprisingly, these changes will be applicable retrospectively with effect from 1 April 1962. The relevant changes introduced by the Budget are set out below.

Definition of a capital asset

The current definition of capital asset includes property of any kind held by a taxpayer (with certain exceptions). In Vodafone, the Revenue contended that the rights in HEL (see above, Transfer of HTIL's property rights by extinguishment ) were capital assets situated in India, which were indirectly transferred and hence subject to tax in India. The Budget retains this inclusive definition and has further expanded it to include any rights whatsoever in (or in relation to) an Indian company, including the rights to manage and control the Indian company.

Definition of a transfer

The definition of transfer, which presently includes any sale, exchange, extinguishment or relinquishment of rights, has been expanded to include the creation or disposing of any interest in any asset in any manner whatsoever (that is, directly, indirectly, absolutely, conditionally, voluntarily, involuntarily by way of an agreement entered into in India or outside India or otherwise).

Scope of income deemed to accrue/arise in India

The Budget proposes that an explanation be added to section 9(1)(i) of the Act (see above, Section 9 of the Act: a look through provision? ) to clarify that the expression "through" will mean and include "by means of", "in consequence of" or "by reason of". A further explanation is proposed in which it is clarified that a (capital) asset being any share or interest in a company or entity registered or incorporated outside India will be deemed to be situated in India if the share or interest derives (either directly or indirectly) its value substantially from the assets located in India.

Withholding tax provisions

The Budget seeks to include an explanation to subsection 1 of section 195 of the Act to extend its application to all persons, resident or non-resident, whether or not the non-resident has either:
  • A residence or place of business or business connection in India.
  • Any other presence in any manner whatsoever in India.
The above amendments are clearly a move to override the findings made by the Supreme Court in Vodafone.
To overcome the technical barriers to tax cases such as the time limitation on reopening cases that have escaped income tax, the Budget proposes that the Revenue/Assessing Officer be able to reopen cases for up to 16 years (the time limit is currently six years), unless the income relates to any asset (including financial interest) in any entity located outside India.
In addition, the Budget seeks to validate any notice sent, or proposed to be sent, regarding taxes that are, for example, levied, demanded, imposed or recovered under the Act. It deems such notice to have been validly made in respect of income accruing or arising through or from the transfer of a capital asset situate in India as a result of either:
  • The transfer of share(s) of a company registered or incorporated outside India.
  • An agreement, or otherwise, outside India.
It is proposed that such notice cannot be challenged on the ground that it is a tax on capital gains arising out of transactions that have taken place outside India.
Note that any amendment that the Budget seeks to make to the Act must pass the litmus test of reasonableness and should not contravene any fundamental rights. A retrospective amendment to fiscal law, while permissible in certain circumstances, must comply with the established principles of natural justice. While such an amendment is permissible in relation to procedural laws, it cannot create an additional charge or levy retrospectively. Such amendments must not become common practice or routine to undo judicial decisions; if they do, they can be struck down as unconstitutional.
The Finance Bill (Budget) is due to be passed by the Parliament (after parliamentary debates, if any) in its next session, which is tentatively scheduled at the end of April. After this, the Finance Bill 2012 will become law by way of the Finance Act 2012.

The way forward: one step forward and two steps back

The eagerly awaited decision in Vodafone has provided both clarity and certainty regarding the key principles of Indian taxation. It is important to note that what was critical in the Vodafone case is that the law does not currently tax offshore share transfers, and absent such legislation, the Revenue cannot view such a transaction in isolation to widen the tax net.
In its verdict, the Supreme Court carefully examined related principles and factors such as FDI into India, the Treaty, expectations in relation to the proposed DTC, and existing key judicial decisions. The Vodafone case ultimately represented a clear victory for the taxpayer, and finally determined how India is to tax cross-border transactions.
Much has been said and discussed about the fate of the Treaty in light of reports of fresh Treaty (re)negotiation between the Mauritian and Indian authorities. While the Supreme Court has stated that the Azadi ruling prevails as law, it recognises an exception where a sham or colourable device is used. If this occurs, there is sufficient ground to pierce the corporate veil, regardless of whether a valid TRC has been issued by the Mauritian authorities. This exception is aimed at countering the growing menace of money laundering, illegitimate wealth, information exchanges and so on. Investors are becoming increasingly aware of such considerations and are starting to look to countries such as Singapore, The Netherlands and Cyprus as intermediate investment jurisdictions.
While the memorandum to the Budget explains its changes as bringing "certainty" in the light of "certain judicial pronouncements", it is clear that the government's aim is to overturn the Supreme Court's decision in Vodafone on all counts. This move, along with the proposed retrospective application of the legislation, seems a short-sighted and dangerous move that has the potential to severely hamper foreign investment into India. The proposal adopted by the government could be subject to constitutional challenge since enacting a retrospective fiscal law that is not designed to clarify something, but instead may lead to the imposition of a levy, clearly contravenes the Indian Constitution.
As a result of the Budget's attempt to undo the Supreme Court's verdict in Vodafone, tax law in India remains uncertain. Only time will tell what the ultimate outcome will be.

The sale of CGP to Vodafone

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