Tax row: court snubs Vodafone
Telecom major Vodafone received a setback on Wednesday when the Bombay HC ruled that income-tax authorities had jurisdiction in an issue that involved a merger and acquisition transaction that resulted in a tax claim on the company. HT reports. Dispute and timelinebusiness Updated: Sep 09, 2010 02:21 IST
Telecom major Vodafone received a setback on Wednesday when the Bombay High Court ruled that income-tax authorities had jurisdiction in an issue that involved a merger and acquisition (M&A) transaction that resulted in a tax claim on the company.
India's Income Tax authorities have jurisdiction over tax matters in cross-border mergers if the transaction has territorial nexus with the country, the court ruled while dismissing a petition by Britain's Vodafone International Holdings B.V., the overseas affiliate of the majority partner in Vodafone Essar.
The income tax department has raised a tax demand of R12,000 crore arising from the company's $ 11 billion acquisition of Hutchison's stake in Hutchison Essar in May, 2007.
The division bench of Justice D Y Chandrachud and Justice J P Devdhar which heard the case, also directed the tax department not to raise any final order for a period of 8 weeks.
This will give Vodafone time to review the judgment in detail and consider its next steps, which includes the option of an appeal to the Supreme Court.
Reacting to the judgement, the Vodafone spokersperson said "Vodafone remains confident that there is no tax to pay on the transaction…"
The telecom major had challenged the Income Tax Department's show-cause notices issued in September 2007 for failure to deduct tax at source from Hutchison, to which capital gains accrued in the deal.
The I-T department argued the transaction constituted a transfer of composite rights of HTIL in Hutchison Essar Ltd., and had sufficient territorial nexus to India and is covered by the Income Tax Act of 1961.
Though the authorities were yet to ascertain Vodafone International' tax liability, the amount is reported to the tune of R1200 crore.