I-T dept initiates Vodafone conciliation process to resolve tax dispute

The income-tax department has formally written to British telecom major Vodafone, agreeing to a conciliation process to resolve the long-running tax dispute.

The letter to the company stems from last week's cabinet decision that allowed a non-binding conciliation with the company under the Indian Arbitration and Contracts Act, said a government official privy to the development.

The company had sought conciliation under the United Nations Commission on International Trade Law, but the cabinet agreed to the conciliation process only under Indian laws.

A company spokesperson declined to comment.

The Income-tax department would keep the tax demand, which includes interest and penalty, in abeyance during the process. Both sides will appoint representatives to carry out the negotiations.

"Two conciliators will sit together and they would come out with an outcome. It is not an arbitration. They will suggest an outcome, a modified outcome and it is a step by step approach. Everything is in public domain," finance minister P Chidambaram had said after the cabinet decision on June 4.

The Central Board of Direct Taxes, the apex body in charge of administration of direct taxes, is agreeable to waiving off a certain component of the interest and penalty on the total tax liability but the company is pushing for waiving both the interest and penalty and also a part of the principal. A panel headed by Parthasarthi Shome, now an advisor in the finance ministry, had recommended that penalty and interest should not be imposed in cases where law had been amended retrospectively.

Vodafone had acquired Hutchison Essar in 2007 from Hong Kong-based Hutchison Whampoa through a $11.2-billion overseas transaction. Indian income-tax authorities slapped a Rs 20,000-crore tax bill on the company including penalty and interest for not withholding tax on the payment made to Hutchison.

Tax authorities' lost in the Supreme Court, but the government amended the income-tax law retrospectively in the last budget making the company liable to pay tax.