I-T Dept said move part of plan to avoid taxes worth Rs 900 crore
The high court here has rejected the proposed demerger of the passive assets of Vodafone Essar Gujarat Ltd (VEGL) to Vodafone Essar Infrastructure Ltd.
It did so on a petition from the income tax (I-T) department, protesting at the scheme.
The transaction was designed by the company in the form of a gift of the passive infrastructure, including all the communication towers of VEGL, into another Vodafone group company, Vodafone Essar Infrastructure Ltd, without any consideration.
“After the sanction of this scheme, it was further contemplated that these assets would be transferred in future to Indus Towers Ltd, a tower infrastructure company, a joint venture between the Bharti, Vodafone and Idea Group of Companies, which may be done with or without consideration,” the I-T department said in a statement issued here.
A Vodafone spokesperson said, “We will be reviewing the order with our counsels, to decide the next steps.” It asked for and got from the HC a suspension of two weeks before the order takes effect.
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Nitin Mehta, counsel for the I-T department in this case, said: “The HC has accepted our argument that the proposal to transfer the immovable assets from Vodafone Essar Gujarat to Vodafone Essar Infrastructure is nothing but a ploy for planned tax evasion. Under this scheme, Vodafone would be able to evade both stamp duty and income tax.”
He claimed this was a first-of-its-kind judgment passed by a HC, dismissing a corporate demerger proposal.
An I-T department statement said: “The department filed its objection to the sanctioning of the scheme on various grounds, including that such transaction of gift is beyond the scope of the provision of Section 391 of the Companies Act, 1956, and is nothing but a devise to evade crores of taxes, including income tax and stamp duty,”
Mehta said similar demerger schemes were planned by Vodafone Essar across seven telecom circles, whereby seven group companies of Vodafone Essar in these respective circles were to demerge their passive infrastructure into Vodafone Essar Infrastructure.
A judgment in the Delhi HC on the same issue is pending.
According to I-T department, the combined value of the passive infrastructure across the seven circles could be around Rs 15,000 crore. If transferred under the proposed scheme, it would entail an avoidance of stamp duty worth Rs 900 crore.
“Considering stamp duty at six per cent and income tax charged at 30 per cent, the net planned tax evasion can touch Rs 5,000 crore across seven circles,” Mehta contended.