Resuming its arguments against Rs 11,000-crore tax demand by the Income Tax (I-T) department, the British telecom giant Vodafone today contended before the Supreme Court that the present Indian income tax laws do not cover gains from overseas transactions.
Senior advocate Harish Salve appearing for Vodadfone submitted before the apex court that under the present Income Tax Act, overseas transactions between two foreign companies cannot be taxed and it could be done by only by bringing a new law by Parliament.
"The I-T department cannot do it. It would have to be done only by Parliament by enacting a new law," said Salve.
The telecom giant further submitted that by showing a mere "nexus" between the two companies, the I-T department cannot say that transfer of shares of Hutchison Communication International to Vodafone International Holding BV would be taxed.
"You cannot use a nexus only to create a charge [of tax]," said Salve, adding that Parliament would have to define the territorial capacity as how it would be taxed and authority of the nation on such transaction.
"Transfer of control is not taxable [under the I-T Act]. For that you would have to make fixtures [law]. And even the Parliament make law, then some one have to show nexus," said Salve adding that "it has to be done by law and not by sudden invocations".
He also refereed to sale of stake by Tata and global telecom major AT&T in Idea Communication and it was not taxed.
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Referring section 9 of the I-T Act, which defines Income deemed to accrue or arise in India, Salve said it does not mention any such transfer of control to be taxed.
"Even the Indian firms which pays their dividends outside India are non-taxable under the Act," said Salve.
Vodafone is contesting I-T department's demand of Rs 11,000 crore as capital gains tax over its buy out of Hutchison's 67% stake in Essar-Hutchison joint venture for $11 billion.
The hearing would resume on Tuesday.
The British telecom company had purchased 67% stake of Hutchison in Hutchison—Essar for over $11 billion. Following this, the I-T department raised a tax demand of about $2 billion on the company as it had failed to deduct (withhold) capital gains tax at the time of stake purchase.