Vodafone International Holdings BV filed a writ petition in the Bombay high court on Friday seeking to insulate itself from the income-tax department\u2019s attempt to explore a second route to tax the company\u2019s 2007 deal with Hutchison Telecommunications International Ltd to buy the latter\u2019s majority stake in Indian telecom company Hutchison Essar Ltd.<\/p>\n
At present, Vodafone and the tax department are already engaged in a legal battle in the Supreme Court (SC), where the former has challenged Indian authorities\u2019 jurisdiction over the deal.<\/p>\n
Friday\u2019s development was the outcome of a \u201ctactical move\u201d by the tax authorities in its battle against Vodafone, a person associated with the company\u2019s legal defence said on condition of anonymity.<\/p>\n
The tax authorities believe Vodafone is liable to pay withholding tax estimated at Rs12,000 crore on the deal.<\/p>\n
\u201cThe tax office has now initiated a different process\u2014treating Vodafone as an \u2018agent\u2019 of the seller,\u201d an e-mailed statement of the company said. \u201cTo protect its position, Vodafone has today filed a writ with the Bombay high court defending itself against these new steps being taken by the tax office,\u201d the statement added.<\/p>\n
The origin of Friday\u2019s development goes back to May when the tax department sent a report to Vodafone explaining why the deal fell within their jurisdiction. Along with a report, the tax department also sent the company a \u201cshow-cause\u201d notice on why it should not be taxed as Hutchison\u2019s agent (Section 163).<\/p>\n
\u201cThis is a parallel issue,\u201d said a senior tax official involved in the case, who did not want to be quoted. \u201cThere are two cases here.\u201d<\/p>\n
Friday\u2019s writ was related to the case in which the tax department had asked Vodafone why it should not be treated as a representative assessee of Hutchison, the official said.<\/p>\n
The case in SC was about Vodafone not having deducted withholding tax when it paid Hutchison in 2007, the official added.<\/p>\n
The roots of the case go back to May 2007, when Vodafone bought Hutchison\u2019s 66.98% stake in Hutchison Essar for $11.2 billion.<\/p>\n
Hutchison controlled its Indian telecom subsidiary through a Cayman Islands firm called CGP. CGP\u2019s shares were sold to Vodafone, which consequently became a majority owner of the Indian telecom firm. Vodafone\u2019s contention all along has been that the existing Indian law does not give Indian tax authorities jurisdiction over an overseas transfer of the kind it did.<\/p>\n
The tax authorities have so far disputed the contention and say Vodafone should have deducted tax at source before paying Hutchison. With Friday\u2019s development they have introduced another reason on why Vodafone is liable to be taxed.<\/p>\n
\u201cWhile the core question of jurisdiction is now being considered by SC, the department has resorted to this different approach in order to recover the tax from Vodafone in relation to the same demand,\u201d Nishith Desai, Vodafone\u2019s special counsel, said in an e-mailed statement. \u201cTherefore, a writ petition has been filed before the Bombay high court, which would hear the matter on 27 October 2010.\u201d<\/p>\n
Before that, SC will hear the next round of arguments between the lawyers of Vodafone and the tax department on 25 October.<\/p>\n
According to two people associated with Vodafone, the immediate cause for Friday\u2019s writ was a recent communication from the tax officer assessing Vodafone\u2019s tax liability. In the communication, the officer asked the company\u2019s representatives to present themselves for a hearing on the show-cause notice under Section 163.<\/p>\n
Vodafone then chose to approach the Bombay high court with a writ as it expects SC may decide on whether the Indian income tax authorities have jurisdiction over the deal with Hutchison to begin with.<\/p>\n
\u201cI think that the (tax) department has chosen to proceed since SC refused to grant a stay (on) the Bombay HC (high court) order,\u201d said Mukesh Butani, partner at BMR Advisors.<\/p>\n
\u201cOne view is that SC rejected Vodafone\u2019s plea for stay of Mumbai HC order. The other view is that SC will continue Vodafone\u2019s plea in the next hearing,\u201d Butani said, explaining the possible reason for the tax department\u2019s attempt to move forward with the Section 163 notice.<\/p>\n
Bombay high court\u2019s verdict in September partially upheld positions of both sides and said tax authorities could unbundle different rights conferred through shareholding to tax aspects relevant to India.<\/p>\n","protected":false},"excerpt":{"rendered":"
Vodafone International Holdings BV filed a writ petition in the Bombay high court on Friday seeking to insulate itself from the income-tax department\u2019s attempt to explore a second route to tax the company\u2019s 2007 deal with Hutchison Telecommunications International Ltd to buy the latter\u2019s majority stake in Indian telecom company Hutchison Essar Ltd. At present, […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[1],"tags":[206,1371,785,188,1407,1406],"class_list":["post-7023","post","type-post","status-publish","format-standard","hentry","category-top-law-news","tag-against","tag-files","tag-move","tag-petition","tag-tax-authorities","tag-vodafone"],"yoast_head":"\n