Vodafone loses $1.7 bn tax appeal in Mumbai court

December 3rd, 2008 - 6:54 pm ICT by IANS  

Mumbai, Dec 3 (IANS) The Bombay High Court Wednesday dismissed a petition by the Britain-based global mobile giant Vodafone, challenging a $1.7-billion tax notice served on the company related with the acquisition of majority stake in an Indian company last year for $11.1 billion.The division bench of Justice S. Radhakrishnan and Justice Anand Nirgude, however, restrained the Income Tax Department from executing its tax notice for eight weeks to enable Vodafone to file an appeal, if it so intended.

“We will file an appeal in the Supreme Court soon,” said Dinesh Kanabar, the company’s tax consultant. The company declined further comment saying it would like to examine the full court order first.

Vodafone had acquired the majority stake in what was then Hutch-Essar from the Hong Kong-based Hutchison Whampoa, following which it was served a notice to pay capital gains tax of around $1.7 billion. The company now functions under the Vodafone brand.

The transaction was one of the largest mergers and acquisitions in India last year and experts said the court’s directive could have a potential implication on several other such acquisitions, both executed and potential.

The Mumbai-based Ruias, who run the Essar group, have a minority stake in the venture.

The Income Tax Department argued that the Britain-based firm was not exempt from paying such a tax, despite the transaction being concluded overseas, since the assets of the acquired company were predominantly in India.

Vodafone’s lawyers had also argued that the transaction was executed through a subsidiary based in the Netherlands and that since Hutchison was incorporated in Cayman Islands, India’s Income Tax Act did not apply.

They said transfer of controlling interest was not a transfer of capital assets, and that the tax was payable by Hutchison, which was not based in India. They said the Income Tax Act cannot have “extra-territorial jurisdiction”.

But the tax administration said it expected Vodafone to deduct the tax at source before making the payment to Hutchison. It wanted to treat Vodafone as an agent of the non-resident company, Hutchison, under Section 163 of the Income Tax Act.

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