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ANKITA KHURANA(176)JYOTI SHARMA(147)PRIYANKA (151)ASHUTOSH GOYAL(156)PALLAVI(179)
Vodafone tax case The tax dispute between The Indian Tax Authorities; and Vodafone in connection with taxability of the $ 11.2 billion Hutch-Vodafone deal is one of the biggest controversies in Indian history. The quantum of tax demand by the Indian Revenue Authorities in this particular case was around Rs.11,000 crore plus interest.
Some Basic TermsMerger A merger involves the mutual decision of two companies to combine and become one entity. Eg. A + B = ABAcquisition Acquisition is purchase of one company by another in which no new company is formed. Eg. A + B = A
Merger is like two persons getting married.Acquisition is like an animal eats any other.
What does Tax Haven Mean?
A tax haven is a state, country or territory where certain taxes are levied at a low rates or not at all.Worlds Top 10 Tax Haven CountriesSwitzerlandCayman IslandsLuxembourgHong KongUSASingaporeJerseyJapanGermanyBahrain
Companies Involved in Transaction
HTIL (Hutchison Telecommunications International Limited)Situated in Hong Kong Holding 100% Shares in CGP Investments Holdings Ltd
CGP (CGP Investments Holdings Limited)Situated in Cayman Island, Mauritius (a tax haven country)Holding 67% Shares in HEL
HEL (Hutch Essar Limited) Situated in IndiaFormed by Merger of HTIL and Essar Group
VIH (Vodafone International Holdings)Situated at NetherlandSubsidiary of Vodafone Group Plc
Instead of responding to the Notice of Indian Revenue Authorities, VIH filed a writ petition to the Honorable Bombay High Court challenging jurisdiction of Income Tax Department.The Honorable Bombay High Court upheld the matter in favor of Indian Revenue Authorities. VIH filed Special Leave Petition (SLP) before the Honorable Supreme Court of India. The Supreme Court disposed the case with a direction to Tax Authorities to decide the preliminary issue of jurisdiction.December 2008January 2009Vodafone petition to HC and SCVodafones PleaThe provisions were not applicable to the current case and the primary obligation to discharge the tax was with the payee (Hutchison Telecommunications International Limited)
Unless the payee had defaulted in making payment of taxes, on demand by the Revenue authorities, tax could not be recovered from the payer
The withholding tax provisions cannot have extra-territorial application i.e. cannot apply in an offshore transaction involving two non residents in respect of a capital asset (i.e. shares) and payment outside India
The transaction is not chargeable to tax in India since it involves transfer of shares of a non-resident company by one non-resident to another and is not a transfer of a capital asset situated in IndiaThe High Court DecisionIt holded that the notice is legally tenable and thus dismisses the writ petitionThe following are the observations made by the High Court:Income was earned towards consideration for transfer of its business/economic interests as a group.The subject matter of the present transaction is nothing but transfer of interests, tangible and intangible in Indian companies and not an innocuous acquisition of shares of a Cayman Islands CompanyThe interest in Telecom License is jointly held with the Essar Group along with the use of Brand & Goodwill and non-compete rights given by HTIL and so there is a right to enter into Telecom Business in India, with a premium for the controlling interest
16-08-201111As there was admittedly a transfer of controlling interest in the Indian company, there was an extinguishment of rights and relinquishment by the transfer or in the shares of the Indian company which constituted a transferThe shares in the Cayman company were merely the mode or the vehicle to transfer the assets situated in India The choice of the assesse in selecting a particular mode of transfer of such assets will not alter or determine the nature or character of the assetAs the assesse (Vodafone) had wilfully failed to produce the primary/original agreement and other prior and subsequent agreements/documents , so it was impossible to appreciate the true nature of the transaction and the constitutional validity of Income-tax provisions could not be gone intoIt is settled law that a writ cannot be entertained against a mere show-cause notice unless the Court is satisfied that the show cause notice was totally unjustified in the eye of law for absolute want of jurisdiction of the authority to even investigate into factsThe High Court Decision (Contd)16-08-201112
