Vodafone says nothing immoral about taking Mauritius route

The much-awaited hearing in the appeal by Vodafone against Rs 11,000 crore in capital gains tax demanded by the Indian authorities started before a bench headed by Chief Justice S H Kapadia.

The two other judges are K S Radhakrishnan and Swatanter Kumar. The UK-based company has already lost its case in the Bombay high court, which rejected its defence against the demand for tax on its 2007 takeover of Hutch Essar, the Indian arm of Hong Kong’s Hutchison Telecommunications International. The deal was worth a little over $11 billion.

The company argues all the transactions happened abroad and between foreign corporations, and therefore the Indian authorities have no jurisdiction to demand tax. The revenue authorities contend that though the financial transactions happened abroad, the business and profits were entirely in India and, therefore, they have the power to demand tax. They maintain that Vodafone failed to withhold taxes on its acquisition of the local unit, Hutchison Essar Ltd, to become the third-largest mobile-phone operator in India.

Wednesday, Vodafone International Holding BV argued that FDI through Mauritius has been recognised by the Indian government and there was “nothing immoral” about it. As the sector needs huge investment, the government has recognised and allowed “genuine investment” to come through Mauritius, the Cayman Islands or such other places. Unless there was “fraud or sham” in the dealings, the revenue authorities should not invoke income tax laws, senior counsel Harish Salve said, while opening the arguments in the company’s appeal.