At a time when the government has made little progress over the settlement of its multi-billion dollar tax dispute with British telecomgiant Vodafone and uncertainty persists over the taxation of cross-border deals, it has been stung with yet another challenge to its controversial retrospective tax lawsannounced in Budget 2012. 

IHC Mauritius Corporation, a wholly owned subsidiary of Cayman Islands based India Hospitality Corporation, has filed a writ petition at the Bombay High Courtchallenging the constitutional validity of the retrospective amendments to tax laws, three sources familiar with the development told ET NOW. This paper's television channel ET NOW was the first to report the development.

"This fresh development shows that there is a case for reconsideration of the retrospective amendments to tax laws based on the recommendations of the Shome Panel. The government can consider issuing operational guidelines to field officers for not disturbing closed assessments ", says Sanjay Sanghvi, Tax Partner, Khaitan & Co 

"This case is likely to have an impact on the Vodafone tax spat with the government. It came up for hearing on Monday and the Bombay High Court will now hear it on October 14th. IHC Mauritius has relied on theSupreme Court verdict in the Vodafone tax case for relief and wants a bar on the revenue authorities from recovering the tax demand of Rs 150 crores or taking any coercive action for the same. IHC also wants protection from the penalty proceedings initiated earlier by the income tax department," said one of the three sources mentioned above. 

In June 2007, IHC Mauritius had purchased overseas entities for around $110 million after having entered into a share purchase agreement with funds based out of Cayman Island and Malaysia, sources added. 

Subsequently, in March 2013, the income tax department issued an order treating IHC Mauritius as an assessee in default relying upon the retrospective amendments made to Section 9 and Section 195 by Finance Act 2013. The company took refuge under the Indo-Malaysia tax treaty and had argued that since the transaction involved 2 non-resident entities , tax was not witheld under the Indian income tax laws, sources added. 

When questioned about the Indian tax regime's aggressive pursuit of cross-border deals,Chris Viebacher, CEO, Sanofi said, "I think there is an aspect here about what messages India gives to the international business community. And i actually think that the Vodafone situation really did a lot of unnecessary harm to India's image." Sanofi Aventis is locked in a cross-border tax battle with Indian tax authorities over its acquisition of Hyderabad based Shantha-Biotechnics in 2009. 

This is the third challenge to the government's unpopular tax policy. British beer giantSABMiller and the largest integrated tea conglomerate in the world, Brij Mohan Khaitan group controlled McLeod Russel, have challenged the retrospective tax laws earlier at the Bombay High Court and Calcutta High Court respectively. (Economic Times)