Vodafone judgment fallout:I-T reviews 2G probe

In an apparent fallout of the Supreme Court’s order in the Vodafone case, the Income Tax department has started a review of its probe in the 2G spectrum scam which relied heavily on the premise of capital gains generated in overseas deals by telecom firms.

The department, which has till now detected Rs 1,500 crore of tax irregularities in its probe in this case, has found that telecom companies involved in the spectrum allocation had sold their controlling stakes to foreign firms through Mauritius and other foreign shores after the allotment of the spectrum.

It had also issued notices to various firms asking them to pay tax on the capital gains from such transactions which includes a recent Rs 80 crore tax notice to a real estate development firm under the transfer pricing clause.

“The department is looking at strengthening the probe from various angles which can stand scrutiny during prosecution,” reliable sources said while refraining from elaborating further about the steps being taken.

The IT department, in its status report filed in the Supreme Court last year, had said that while telecom companies were physically present here, the transactions and the beneficiaries were outside India, and that the department was following the same principles as were used in the Vodafone taxation case.

According to sources in the department, the IT is now reviewing its strategy while taking forward the case and it is eagerly waiting for a decision on the review petition it has filed in the apex court which is listed to be heard on February 27.

“In fact one of the main cases which will have the implication of the Vodafone tax case is the 2G spectrum,” the sources said.

The review petition settled by Solicitor General Rohinton Nariman last week had contended that there was a need for re-considering the January 20 verdict of the apex
court as the law on deciding the case has not been correctly interpreted.

The apex court had held that Vodafone’s transaction with Hong Kong-based Hutchison Group was a “bonafide” FDI which fell outside the tax jurisdiction of Indian authorities and that IT department does not have jurisdiction to levy Rs 11,000 crore as tax on the overseas deal between Vodafone International Holdings and Hutchison Group.

The IT department, in the 2G probe, has also used the provisions of the Double Taxation Avoidance Agreement (DTAA) with various countries including Mauritius for obtaining financial data of these firms.

Under the DTAA, if a firm pays tax in one nation then it is exempted from paying any tax here.

Tax evasion

The department has found a number of instances of tax evasion during its 2G probe where firms and entities have not  paid taxes under the garb of change of share holding patterns, extension or receipt of huge loans, and purchase of infrastructure.  

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