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Finance Minister Pranab Mukherjee today defended the move to amend the Income Tax Act with retrospective effect following which UK's Vodafone may have to pay Rs 11,000 crore as tax for a buyout deal involving Indian business.
"First the Supreme Court told in the Vodafone case that it has to be clearly indicated the intention of the legislature how it is going to tax," Mukherjee said at an interactive session organised by Calcutta Chamber of Commerce.
"We came to the conclusion that we will not be able to tax on Indian assets purchased outside the country," he added.
UK-based mobile operator Vodafone purchased Hong Kong-based Hutchison's telecom business, which included operations in India, in 2007 for about USD 11.2 billion.
Indian income tax authorities said the deal will attract tax on it and sought Rs 11,000 crore from Vodafone, which challenged the move.
The Supreme Court ruling held that Vodafone wasn't liable to pay tax on the deal, following which the government has proposed to amend the tax laws retrospectively to bring in the net such deals.
"I will now pose few questions. We will have to decide whether India will be a no tax country or India will tax ... If the answer is yes that it will be taxed, then whether to be taxed in India or at source of the company. Then comes the question how it is being protected from Double Tax Avoidance Agreement and tax exchange information in India", Mukherjee said.
The legal remedy lay in bringing clarificatory amendments and make clear the intention of the legislature, he added.