Companies & Sectors
Bombay HC rules in favour of Vodafone in transfer pricing case

A division bench of chief justice Mohit Shah and justice MS Sanklecha held that as there was no taxable income arising out of the transaction so there should be no transfer pricing provisions applicable to it


The Bombay High Court on Friday ruled in favour of telecom major Vodafone in the transfer pricing dispute pertaining to sale of shares of its Indian unit to a Mauritius-based group company. The HC said that the telecom operator need not pay tax in a transfer pricing case.


The court said that there was no taxable income arising out of the transaction. A division bench of chief justice Mohit Shah and justice MS Sanklecha held that as there was no taxable income arising out of the transaction so there should be no transfer pricing provisions applicable to it.


The order went against the two-year-old tax demand from the Income Tax (I-T) authorities, who were hoping to collect as much as Rs3,200 crore in tax from Vodafone’s outsourcing unit in Pune. The amount included tax as well as interest for the IT demand for the year 2008-09.


Vodafone is locked in twin tax disputes with the government. One pertains to its 2007 acquisition of Hutchison Whampoa’s stake in Hutchison Essar, and the other is the transfer pricing case involving Vodafone India Services. This accounts to as much as Rs4,200 crore for the financial year 2010-11. It is also mired in a much larger tax controversy for the purchase of 67% stake in Hutchinson Essar in 2007. The claim for this is as large as Rs11,200 crore.


Vodafone is among 20 MNCs involved in transfer pricing disputes with Indian tax authorities. It is expected that the income tax department may appeal to the Supreme Court against the order.


Revival of subsidy for the naphtha-based fertiliser plants

Under the new Investment Policy for New Urea Plants, the government has sought the private sector applicants to provide bank guarantee of Rs300 crore that would be released related to various stages of completion of the project


Last week, Madras Fertilisers Ltd (MFL) went off production lines; this was preceded earlier by the Southern Indian Petrochemicals Ltd (SPIC) and Mangalore Chemicals & Fertilisers Ltd (MCFL) who use naphtha as feed stock for making urea. The combined production of these three units is said to be around 1.5 million tonnes. It may be remembered that India needs about 30 million tonnes of urea and, as the domestic production is around 22 mt, the balance of 8 mt is imported.


The closure of these three units would have rippling effect on not only the employment issue, but also affect essential suppliers like Chennai Petroleum, who supplies about 1,000 KL of naphtha a day to Madras Fertilisers and Southern Petrochemicals. In addition to this, suppliers of LPG, diesel oil, furnace oil and other related materials would be affected, if these plants completely closed down, simply because of withdrawal of subsidy. There ought to be some investigation as to why they could not comply with the requirement to lay the gas pipelines to be able to receive the gas, if and when it is supplied, and, which we already know, is in short supply.


In any case, in a lightening move, the Fertiliser Ministry has taken up the issue at the Cabinet level, and it is now assured that the subsidy will be available. However, the urgent need to have the gas pipe line work done up has not been overlooked.


Under the new Investment Policy for New Urea Plants, the government has sought the private sector applicants to provide for Bank Guarantee for Rs300 crore, release of which will be directly related to various stages of completion (execution) of the project. Also, unlike the past, there is no more government assurance of guaranteed buy-back programme for the urea manufactured.


By 2017, the demand for urea is expected to reach 34 million tonnes, as against the current need of 30 mt. In order to meet this anticipated increased demand, as many as 13 urea makers, including IFFCO, RCF, Tata Chemicals, has applied for expanding their capacities (brownfield) while two new players wanted to start greenfield production units of 1.3 mt capacity per annum each. The government plans to give subsidy for a period of eight years when these plants would be in actual production.


Under the new investment policy, urea producing companies will receive subsidy on domestic sales and the retail price, at the moment is fixed at Rs5,360 per tonne. The difference between this and the actual cost of production would be paid out as subsidy.

In order to overcome the continuing shortage of Urea, the government has taken up the issue of a joint venture with Iran to set up fertiliser plants there. Additionally, there are plans to revive four fertiliser plants in Talcher (Odisha), Ramagundam (AP), Barauni (Bihar) and Gorakhpur (UP). It is hoped that our domestic gas production will also increase in due course.


In the meantime, readers may be aware of the hostile take-over attempt by Deepak Fertilisers to control Mangalore Chemicals and Fertilisers Ltd is not yet over, though, press reports indicate that Vijay-Mallya and Saroj Poddar (Zuari) combination is likely to prevent this measure.


Government must also seriously follow up with other friendly governments, such as Qatar and Oman for putting up fertiliser plants in their countries so as to reduce the cost of transportation of gas to India and, instead, import the finished fertiliser!


(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)


Mysterious Campaign Appears to be the Latest Salvo in Battle Over Net Neutrality

As the FCC considers how to regulate Internet providers, the telecom industry's stealth campaign for hearts and minds encompasses everything from art installations to LOLcats


This story has been updated to include a comment from the National Cable and Telecommunications Association.

On a recent Monday evening, two bearded young men in skinny jeans came to a parklet in San Francisco's trendy Hayes Valley neighborhood and mounted what looked like an art installation. It was a bright blue, oversized "suggestion box" for the Internet.

The boxes, sometimes accompanied by young people in futuristic costumes, have been popping up on both coasts for weeks, soliciting messages of support - but their sponsor has been a mystery. The web site for the campaign, Onward Internet, does not say. Their domain registration is private. And the site includes no contact information, only an animated video heavy on millennial lingo: "The internet was made to move data...we got blogs, likes, selfies and memes, OMG, BRB and TTYL."

The lone hint at a larger message is oblique. "The Internet is a wild, free thing," the site says. "Unbounded by limits, unfettered by rules, it's everyone's responsibility to ensure that the Internet continues to advance."

Turns out Onward Internet may be the latest stealth entrant in the increasingly nasty battle over net neutrality, which will determine how the government regulates Internet providers.

The production agency for Onward Internet wouldn't say who their client is, but an employee for the company that rented the space for the Hayes Valley installation let slip that "It's something called the National Cable and Telecommunications Association" – the principal trade group for the telecom industry.

Telecom companies have been the fiercest opponents of a proposal under which the government would treat broadband like a utility, making it easier for regulators to keep internet providers from blocking certain sites or saddling some content providers with slower speeds or higher fees.

As the Federal Communications Commission nears a decision on new rules, suspicions have grown that industry players are funding independent groups to create the appearance of diverse, grass-roots backing. Think tanks have been accused of being co-opted. Nonprofits have been criticized for concealing who they represent. In one case, the telecom industry was accused of fooling unwitting businesses into joining a coalition against broadband regulation.

NCTA officials did not respond to questions about Onward Internet and would not confirm they're behind it. "What led you to the conclusion that this is an NCTA effort...?" asked Brian Dietz, a vice president for the organization, before he stopped responding to emails.

It's unclear what the lobbying giant hopes to get out of this particular campaign, but the Onward Internet website, call-in line and Twitter feed are collecting messages of support from visitors who would have no way of knowing they're backing a telecom industry campaign.

"Sorry we can't come to the phone right now," the call-in greeting says. "We just got wind of the juiciest celebrity rumor and we're working to confirm it. So please leave your suggestion for the future of the internet at the beep and visit Onward Internet dot com next month to see what we've done with it."

Many in the tech community have pinned their hopes for saving net neutrality on the reclassification proposal that would give the FCC more power over internet providers.


Their belief is that it would make it harder for internet providers to charge content providers more for faster service, and thus protect tech startups from being squashed by established brands that have the resources to pay a premium.

That's why there was surprise in Silicon Valley when a nonprofit called CALinnovates, which says it represents the interests of technology companies and start-ups, entered the debate by taking a stance against the government regulation plan.

"We'd never heard of them until then," said Julie Samuels, executive director of Engine, a nonpartisan startup advocacy group.

CALinnovates filed comments with the FCC opposing the plan. The group's executive director Mike Montgomery wrote a column for the Huffington Post, echoing warnings raised by the telecom industry that more regulation would hamper innovation.

"Would we even know what an iPhone is if Steve Jobs had to run his pricing models past the FCC?" Montgomery asked. "Would Twitter be fomenting revolution if Jack Dorsey needed to check with regulators about what kind of data can be shared online and by whom?"

Most notably, the nonprofit got a flurry of press coverage for a poll it commissioned that found Americans don't support more regulation: "Only one in four Americans believe that government policies can keep up with the pace of innovation that we are seeing with technology, such as the Internet."

The group's stance gave the anti-reclassification camp a backer from within the tech community – a boon for one of CALinnovates' supporters, AT&T.

In an interview with ProPublica, Montgomery declined to say to what extent his organization is funded by the telecom giant, which is listed as a "partner" on its website. Asked if AT&T consulted with him about his net neutrality stance, he said "We have input and advice from all of our members."

Later, a spokesman for the nonprofit released a statement to ProPublica saying, “CALinnovates’ position on net neutrality was based on a thorough economic and legal analysis and reflects CALinnovates' independent thinking on matters important to the tech industry."

The organization's telecom-friendly position didn't seem to mesh with its advisory board, which includes some of Silicon Valley's more prominent names. Ron Conway, for example, is a well-known angel investor who has been a strong backer of government action to protect net neutrality.

Asked about the apparent contradiction by ProPublica, Conway's spokesman lauded "diversity of viewpoints" and CALinnovates but said his boss was on "opposite sides" with the nonprofit.

Days later, Conway resigned from the CALinnovates board.

Outside of CALinnovates, Montgomery has worked for other organizations with telecom ties. Before heading up the nonprofit, he worked for a lobbying firm and political candidates that have taken money from AT&T.

Montgomery said he did not feel he needed to disclose CALinnovates' AT&T ties in his columns on net neutrality.

"We receive support from all of our partners," he said. "I think you'll see a diversity of opinion if you spend some time reading all the things I write."

The FCC has been taking public comments and hosting forums on net neutrality for months, and is expected to make a decision by the end of the year.

Columbia Law School professor Tim Wu – who coined the term net neutrality in 2003 and is a proponent of government regulation to protect it – said he worries astroturfing efforts may lull some lawmakers into inaction.

"The effect of the astroturfing is to make everything foggy," Wu said. "It propels the argument that if things are cloudy, government should stay away (and) let the market decide."

After publication of this story, Brian Dietz, a vice president for the National Cable and Telecommunications Association, issued a comment on behalf of the organization. He said that although the NCTA is interested in soliciting comments on net neutrality, it also wants to hear about other Internet-related issues.

"We know that network neutrality is important to Internet users and we share the vision that the Internet remains an open and unfettered experience for all to enjoy," he said in his statement. "We've kept NCTA's brand off Onward, Internet because we want to collect unbiased feedback directly from individuals about what they want for the future of the Internet and how it can become even better than it is today. The cable industry is proud of our role as a leading Internet provider in the U.S. but we feel it's important to hear directly from consumers about how they envision the future so we can work hard on delivering it."



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