Alleges tax evasion on $11.2-billion deal
In a setback to telecom major Vodafone Essar, the Income Tax Department on Thursday issued a showcause notice to Vodafone International Holdings, alleging tax evasion in its $11.2-billion deal with Hutchison Telecommunications International Ltd in 2007.
In the 531-page notice sent under Section 201(1) and 201(1A) of the IT Act, 1961, it asked Vodafone to explain why it should not be held that “the tax department has competent jurisdiction to proceed against it for the default of non-deduction of tax at source” in the transaction.
“The date fixed for compliance of the notice is November 16, 2009,” the Central Board of Direct Taxes (CBDT) said in a statement. Vodafone, in a statement, confirmed it had received the notice but added that “the development does not affect the strength of its position”.
“Vodafone is confident that no tax is payable on this transaction and all of the taxation and legal advice received remains consistent with this view. Vodafone has cooperated fully with the tax department throughout the process, and will continue to do so,” said the statement.
On May 8, 2007, Vodafone had paid $11.2 billion to Hutchison Telecommunications International for transfer of interest in the Indian company Hutch Essar Ltd. An earlier notice issued in the matter to Vodafone was challenged before the Bombay High Court in a writ petition, which was dismissed on December 3, 2008. Vodafone filed a special leave petition before the Supreme Court against the order of the High Court.
On January 23, 2009, the apex court dismissed its appeal, saying CBDT had jurisdiction over the matter. The court, however, gave it the liberty to “question the decision of the authority on the preliminary issue before the High Court, in the event the same is decided against it”.