Be fair to foreign investors; don't pamper them

There is a bit of triumphalism on display on the part of market fundamentalists in the aftermath of the Vodafone verdict of the Apex Court; they have not, however, realised that the Court was reading and interpreting the law as existed at the relevant point of time. The Court took care to say that it could not possibly read more to Section 9 (1) of the Income-tax Act 1961 that, by its very design, seeks to empower the Indian income-tax administration to reach out to what appears to be income earned and received abroad, but which has a clear Indian nexus. It also took cognisance of the conscious effort being made by the Direct Taxes Code Bill, 2010 (the DTC) to fill this void. The implication of these two aspects of the Apex Court judgment leaves little doubt as to the outcome of Vodafone-type cases when the DTC kicks in, though one is not sure whether the seminal change in the DTC would simultaneously translate into actual tax collections from capital gains — earned by non-residents abroad in respect of shares located abroad, but whose underlying assets are in India operated by Indian operating companies — unless it is expressly provided that it is the responsibility of such Indian companies to pay the tax on behalf of the non-resident.

Source: The Hindu Business Line