The Income Tax (I-T) Department today asked British telecom major Vodafone Plc to pay Rs 11,218 crore as taxes for the $11.2-billion deal done by the company with Hutch Essar in 2007.
The amount stated in today’s order is lower than the earlier liability figure of Rs 12,000 crore. Last month, Vodafone’s petition was dismissed by the Bombay High Court, where it had challenged the department’s jurisdiction to levy tax on the transaction.
However, the High Court judgment also directed the I-T department to re-assess the tax liability of the company. The court asked the department to calculate the tax to be paid, to the extent where the transaction had a “nexus with India”. It also said there were certain contractual rights that Vodafone had with Indian parties, which came with the deal. It said that share transfer in itself was a deal done between foreign entities and, hence, was not liable to tax.
The case between the department and Vodafone is now being heard in the Supreme Court, which will review this ‘apportionment’ on October 25. The apex court will also make decisions on any future stay order on the tax demand.
Vodafone Plc said it strongly disagreed with the tax calculation released by the tax office. It also said the tax calculation released was unfounded and failed to follow the conclusions of the High Court judgment.
“Vodafone was the acquirer and not the vendor and has made no gain on the transaction. In this ‘test case’, the tax authority is attempting to interpret Indian law as it has never been interpreted for the past 50 years, and this interpretation also goes against internationally-recognised tax norms,” the company said in a strong statement against today’s order.