The Hindu Business Line : HC dismisses Vodafone challenge in tax case

Mumbai, Dec. 3 The Bombay High Court on Wednesday dismissed the writ petition filed by Vodafone International Holdings challenging the jurisdiction of Indian tax authorities to assess withholding tax (akin to tax deduction at source) arising out of the UK-based company’s acquisition of a controlling stake in Hutchison Essar.

However, the Division Bench of Mr Justice S. Radhakrishnan and Mr Justice Anand Nirgude has extended by eight more weeks the earlier stay order on the tax department from proceeding in the case against Vodafone.

Vodafone now has this period of time to approach the Supreme Court in appeal.

This will also allow time for Vodafone to review the grounds of the court’s decision, Vodafone said in a statement issued today.

The written order of Wednesday was not available, so the grounds for dismissal of Vodafone’s petition could not be ascertained.

The Income Tax Department had last year issued a show-cause notice to Vodafone on withholding tax in the $ 11.2-billion deal in which it acquired Hong-Kong based Hutchison Telecom International’s (HTIL) stake in Hutch-Essar Ltd (now Vodafone Essar).

A show-cause notice was issued to Vodafone-Essar too on why it should not be treated as an ‘agent’ in the deal. The Mumbai-based Ruias, who run the Essar group, have a minority stake in Vodafone Essar.

Vodafone then filed a writ petition in the Bombay High Court. Its contention was that the tax department had no jurisdiction over a deal between two parties incorporated overseas. Also, Vodafone (through its Netherlands subsidiary) had not directly acquired shares of the India-incorporated Hutch-Essar. It had acquired shares in HTIL’s holding company located in Cayman Islands which, in turn, owned a stake in the Indian company.

According to Mr G.C. Srivastava, Senior Counsel for the IT Department and Director, Chaturvedi & Shah, Indian tax laws apply to any foreign entity with nexus or operations in India, even if it were not incorporated here. Section 9 of the Income Tax Act stipulates that any transfer of asset (in India) directly or indirectly due to which income has arisen should be taxed in India. Asset could mean a capital asset, a business asset or any revenue earning apparatus.

“It is the seller who should be taxed and the seller is not one of the parties represented here,” the then Vodafone group CEO, Mr Arun Sarin, had told newspersons last year after a board meeting of Vodafone Essar in Mumbai. He had said that neither the Essar Group nor Vodafone nor Vodafone Essar was liable to pay taxes.

On whether a claim would be made on HTIL (located overseas) for capital gains tax, a senior CBDT official said: “We are going step by step. Already an international company Vodafone had been issued notice.”

Related Stories:
Vodafone case hearing concludes
Income-tax law only covers cos incorporated in India: Vodafone
Vodafone tax case

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