The income tax department is unlikely to waive penalty on Vodafone’s tax dues as it feels this will create a bad precedent for all its major pending tax cases. It has also decided to make it compulsory for all its officers from now on to charge penalty on taxes that get due but are not paid on time.

The disquiet in the department is because an exemption for Vodafone will run counter to the public stand taken by the revenue officers that the company was served a notice of tax dues well before the case was filed. Going by that logic, Vodafone is liable to pay penalty along with original tax dues.

Under Income Tax Act Section 271C, if a tax that is due is not paid, a penalty equal to the due must be levied. Since there are no escape clauses in the section, waiving the penalty will require an amendment of the Income Tax Act. While there have been reports that the government is considering adding a clause to allow a waiver of penalty on dues that were raised before April 1, 2012, a general amendment of this nature would immediately nullify several tax dues raised in other cases. This includes demands on telecasting companies for making payments to satellite companies to use their transponders. Finance Bill 2012-13 has clearly laid down the taxability criterion for these cases.

The income tax department is also concerned that even though the waiver of penalty will shave off R7,900 crore from the liability of Vodafone, the company will be under no obligation to not pursue its legal battle with the finance ministry challenging the tax itself.

The public position taken by the tax department about the taxability of Vodafone came in its rejoinder to a news story carried by FE. Finance minister Pranab Mukherjee will be placing the amendment bill this week in Parliament incorporating some changes. Vodafone global chief Vittorio Colao had met Mukherjee this week to press his company's case.

The Income Tax Act allows two major versions of penalties on taxes. While 271C is for cases where there is no willful default, the other is for concealment of income. But in either case, the sections allow coercive powers to the department which now run the risk of being played down. (Financial Express)