Mukherjee defends changes planned in I-T Act to deal with cross-border deals

Finance minister Pranab Mukherjee today defended the proposed amendments to the Income Tax Act to deal with cross-border deals, saying there is "no other way" than amending the Act with retrospective effect to bring Vodfone-type cross-border deals into the tax net.

The government lost Rs11,000 crore ($2.2 billion) in tax on Vodafone's $11.2 billion acquisition of 67 per cent stake in Hutchisson Essar from Hong Kong-based Hutchison Telecom in 2007, as the Supreme Court held that the company was not liable to pay tax in India as the deal was done between two foreign entities overseas.

"I am posing a very few straight questions to you. We shall have to decide whether you want India to be a no-tax country or India will be a country where there will be taxation," Mukherjee said during an interactive session organised by the Calcutta Chamber of Commerce.

"Transactions of assets located in India, whether it should be taxed or not. If the answer is that it has to be taxed, then whether it will have to be taxed in India or at the sources of the company concerned... there comes the question of how it will be protected by the Double Taxation Avoidance Agreement or Tax Exchanging Information Agreement. Except these, there is no other way," he said.

"If the intention is that no company should pay double taxes, and equally it is clear that there cannot be a situation, that they will have to pay no taxes, either to the country of source or to the country of operation, then what is the better remedy," the finance minister asked.

The 2012-13 budget proposal to amend the Income Tax Act. 1961 with retrospective effect, had evoked sharp criticism, especially from Vodafone, which said the move was grossly unjust.