The law ministry has rejected the proposal of reconciliation by British telecom major Vodafone for settling the long-pending tax dispute on the grounds that it is impermissible under the existing Income Tax Act,1961.
This has put the government in a peculiar situation where it is left with no option but to approach Cabinet for deciding on the Vodafones demand for a reconciliation.
Earlier,in January,the finance ministry had sent a reminder notice to the telecom giant for payment of tax following which Vodafone sent a letter to the ministry proposing conciliation.
The ministry had then sought attorney generals view on the matter.
According to the AGs view,the government will have to first amend the I-T act,providing for such reconciliation,only after which will it be able to go for such an exercise.
However,given the fact that the finance ministry is already working on a new direct tax code,it will be a tough call for the department on whether to bring in substantial amendments in the existing act or wait for the new code to get implemented.
After the law ministrys rejection,only Cabinet can decide on the matter, an official said.
Vodafone India non-executive chairman Analjit Singh met finance minister P Chidambaram on Thursday and exuded confidence that a solution would be found to the tax dispute.
Vodafone is facing a
tax liability of Rs 11,200 crore for purchase of Hutchison Whampoas stake in its Indian telecom business in 2007.