Vodafone's $2bn tax case
Summary of Supreme Court Proceedings
In February, 2007 Vodafone (through its Netherlands entity) entered into an agreement with Hutchison Telecommunications International Limited, Cayman Islands (‘HTIL’), for acquisition of 66.9848% equity and interests in the Indian telecom business of Hutchison Essar Ltd. (hereinafter referred to as ‘HEL’). The total value of the transaction was $ 11.206 billion. [pic]
The IT Department alleged that Vodafone (Netherlands), the buyer, had failed to deduct Indian tax on the payment of consideration made to HTIL and a show cause notice was issued to Vodafone BV in September 2007 for failure to withhold tax.
Bombay High Court, in September 2010, dismissing the writ petition filed by Vodafone, held that share transfer had a significant nexus with India. HC also held that “The essence of the transaction was a change in the controlling interest in HEL which constituted a source of income in India. The transaction between the parties covered within its sweep, diverse rights and entitlements. The Petitioner (Vodafone) by the diverse agreements that it entered into has a nexus with Indian jurisdiction. In these circumstances, the proceedings which have been initiated by the Income Tax Authorities cannot be held to lack jurisdiction.”
Accordingly, Bombay High Court has held that the share transfer by Cayman entity is liable to tax in India. The total tax impact of the transaction is over Rs 11,000 cr.
Vodafone has filed an appeal before the Supreme Court against Bombay High Court decision. A 3 judge bench of Supreme Court led by Chief Justice SH Kapadia, began hearings in Vodafone case from August 3rd, 2011.
Vodafone Counsel, Former Solicitor General Harish Salve has argued for 17 days over 7 weeks. Solicitor General Rohinton Nariman, argued on behalf of the Income-tax department for 6 days.
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