Thaindian News

New Delhi, April 5 (IANS) Telecom service provider Vodafone said Tuesday it has challenged in the Supreme Court the penalty levied by the income tax department on its acquisition of Hutchison Wampoa’s majority stake in Hutch Essar in India.

After the 2007 acquisition, the company was renamed Vodafone Essar. Vodafone last week bought out the Essar stake for $5 billion.

“It is difficult to understand the rationale behind the tax authorities seeking to impose penalties on a matter which the tax authorities have, themselves, described as a ‘test case’,” the company said in a statement.

“The position being taken by the tax authorities is both unprecedented and also out of step with international taxation principles governing acquisitions, which are designed to encourage investment,” it added.

The company also said that the tax demand is likely to raise further concerns amongst potential investors in India.

According to the London-headquartered Vodafone, the income tax department, as per the Indian taxation laws, cannot impose penalties in cases where the assessee has acted on reasonable legal advice in view of past tax precedents in India or the issue of tax being imposed is being decided for the first time by Indian courts.

“Seeking penalties on a ‘test case’ involving a major infrastructure investor highlights the unpredictable nature of India’s taxation policy. This move is only likely to raise further concerns amongst potential investors into India,” the company said.

The income tax department has been contending that Vodafone should have deducted tax before paying Hutchinson Wampoa and demanded $2.5 billion as the tax due from the deal.