By IANS,
Mumbai/London : The Bombay High Court Monday directed Britain’s Vodafone to file a rejoinder to the Indian income-tax department’s response after the British telecom giant challenged a £1 billion tax claim.
The directions were given by a division bench comprising Justice S. Radhakrishnan and Justice A.V. Nirgude during a five-day hearing of the case, which started Monday.
Senior counsel Iqbal M. Chagla, representing Vodafone, contended that the show cause notice issued by the IT department is premature since taxability has not been established as yet.
He also said transfer of controlling interest is not a transfer of capital asset, and that the tax is payable by Hutchison, which is a company based in the Cayman Islands.
The IT department’s counsel said the income accrues to a “clear-cut” business transaction in India and that there was a transfer of capital assets.
The case will be heard every afternoon till Friday.
The court will decide whether Vodafone owes the Indian tax authorities nearly £1 billion for its $11-billion takeover of Hutchison Essar, one of the country’s major mobile networks.
Vodafone bought a controlling stake last year and has said no tax is owed to India as the share transfer took place between a Dutch group owned by Vodafone, and a Hutchison company registered in the Cayman Islands, both outside India’s jurisdiction.
The Indian finance ministry does not agree, and has argued that its capital gains claim is genuine as the assets of the company in question are on Indian soil.
It also said Vodafone ought to have deducted the capital gains tax at source before paying Hutch, and asked the company to pay £1 billion in tax, leading to the court case.
This week’s hearing will decide on the validity of a Vodafone writ seeking an injunction against the tax authority’s investigation of the deal.
The case has major implications for all foreign companies pursuing Indian assets, says The Independent newspaper in the UK.
Among other things, the issue launches a debate over whether India can tax a transaction in which both the buyer and the seller are non-residents.
Vodafone’s is not the only such case. Though subtly different, deals by General Electric and AT&T in recent years are now also coming under scrutiny from India’s revenue authorities.
Vodafone’s $11-billion acquisition of Hong Kong-based Hutchison’s 67 percent stake in Hutch Essar was among the biggest mergers and acquisitions last year in this country.