Income-tax department to issue fresh notice in four weeks.
The Supreme Court today rejected the plea of Vodafone International Holdings BV to stay a Bombay High Court judgement in a dispute over capital gains tax demands, but asked the income-tax authorities to determine its precise liability according to the high court order.
Within hours of the ruling, the income-tax department said it would issue a fresh notice to Vodafone within four weeks, asking it to pay over Rs 12,000 crore in tax and interest for the acquisition of stake in Hutch Essar in 2007. "We will be raising a tax demand on Vodafone within four weeks,” confirmed Central Board of Direct Taxes Chairman SSN Moorthy.
The Supreme Court order, passed by a bench headed by Chief Justice S H Kapadia in the Vodafone appeal, came after Attorney General G E Vahanvati submitted that the company should be heard only if half of the demand for Rs 12,000 crore was deposited beforehand.
However, there was no agreement between the attorney general and Vodafone counsel Harish Salve on the exact amount due. Therefore, the court issued notice to the income-tax department and asked its officer in charge of tax deduction at source to come up with the exact figures of the foreign company’s liability.
“If you want a stay on the high court judgement, you have to pay part of the amount. The choice is yours,” the bench said, while asking counsel not to press for the stay. The court will hear the case on October 25. On that day, Vodafone can ask for further orders based on the figure determined by the tax authority, the court said.
Reacting to the order, a Vodafone Group Plc spokesperson said: “We are pleased that the Supreme Court has decided to hear Vodafone’s appeal against the recent Bombay High Court verdict on the issue of jurisdiction. A date for the full hearing will be set on October 25, 2010.”
The spokesperson added: “The Indian tax authority has been ordered to determine the potential liability and place it before the Supreme Court on October 25, 2010. The Supreme Court will then decide on whether the relief in Vodafone’s favour continues.”
Reiterating its earlier stand the spokesperson said: "We firmly believe that this transaction is not subject to tax in India. Furthermore, as Vodafone is the acquiring company, we have clearly not made any capital gain on the sale. We will continue to take whatever actions necessary to defend Vodafone’s position as the matter proceeds.”
The share price of Vodafone plc, however, fell on the London Stock Exchange by 1.90 per cent at the time of going to press, and was trading at around £1.59.
Meanwhile, the income-tax department said Vodafone will get one month to make payment on its notice, subject to the final verdict of the Supreme Court.
If it is directed to make the entire payment at one go, the government’s coffers would go up by Rs 12,000 crore in just two months.
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The deadline for sending the order to Vodafone is October 25, which is also the next date for the case’s hearing in the Supreme Court. The department will send the order to the company and give the court a copy.
"Apprehensions have been expressed in different quarters regarding the impact of such action on foreign investment. The ruling, coupled with earlier rulings of the Bombay High Court, proved that I-T authorities in India have acted lawfully. This, together with the fact that India has received the highest ever foreign direct investment in the current fiscal, belies that apprehension," Moorthy added.
The Bombay High Court, in its September 8 judgement, had upheld the jurisdiction of Indian tax authorities in the cross-border deal that created Vodafone-Essar three years ago. Vodafone bought 67 per cent stake in Hutch-Essar from Hong Kong-based Hutchinson Telecom International.
Vodafone argues that the deal was between two overseas companies. The government maintains that assets in this country were involved, though the deal was signed in tax havens abroad, and therefore the tax department has jurisdiction in the matter.
