British telecom company Vodafone on Tuesday said it had filed a petition in the Supreme Court against the penalty proceedings initiated by the Income Tax department. The revenue authority recently sent a notice to the company saying it plans to slap a penalty on the company for evading tax in the 2007 Hutch deal.
"We will take appropriate steps to defend ourselves and the investors against this latest unwarranted action from the tax authority," the company said in a statement. The petition will come up for hearing on Thursday.
Both the parties are already fighting a case in the Supreme Court where they are battling over whether the I-T department has the jurisdiction to tax the $11.2 billion deal where Vodafone bought 67 per cent controlling stake from Hutchison. The company is now called Vodafone Essar and is the second largest telecom company in India. This case will come up for hearing on July 19.
While the I-T department had calculated Rs 11,218 crore as tax liability of Vodafone, last month it sent a notice to the company saying it would seek a further penalty. The I-T authorities invoked Section 271 of the Income Tax Act where a company or an individual has to pay a penalty if one failed to furnish returns, comply with notices or had concealed income.
Vodafone says the move is unprecedented, and not in line with the international taxation principles.
"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. Seeking penalties on a test case highlights the unpredictable nature of India’s taxation policy," Vodafone said in a statement.
The London-based company claims that established tax laws are being reinterpreted and there were no previous incident of such taxes being imposed in India on an overseas share transfer.
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According to the Supreme Court directive, Vodafone already deposited Rs 2,500 crore in cash and Rs 8,500 crore in bank guarantees with the court for the tax claim which is under dispute.
Essar recently decided to sell its 33 per cent stake in the joint venture to Vodafone. However, in this deal, Essar would be liable to pay capital gains tax as it is based in India.