ANKITA KHURANA(176)

JYOTI SHARMA(147)
PRIYANKA (151)
ASHUTOSH GOYAL(156)
PALLAVI(179)

Vodafone tax case

The tax dispute between
The Indian Tax Authorities; and
Vodafone in connection with taxability of the $
11.2 billion
Hutch-Vodafone deal is one of the biggest
controversies in Indian history.
The quantum of tax demand by the Indian Revenue
Authorities in this particular case was around
Rs.11,000 crore plus interest.

Some Basic Terms

Merger A merger involves the mutual decision of
two companies to combine and become one entity.
Eg. A + B = AB
Acquisition Acquisition is purchase of one
company by another in which no new company is
formed. Eg. A + B = A
Merger is like two persons getting married.
Acquisition is like an animal eats any other.

What does Tax Haven Mean?

A tax haven is a state, country or territory where
certain taxes are levied at a low rates or not at all.
Worlds Top 10 Tax Haven Countries

Switzerland
Cayman Islands
Luxembourg
Hong Kong
USA
Singapore
Jersey
Japan
Germany
Bahrain

Companies Involved in Transaction

HTIL (Hutchison Telecommunications International Limited)

Situated in Hong Kong
Holding 100% Shares in CGP Investments Holdings Ltd

CGP (CGP Investments Holdings Limited)

Situated in Cayman Island, Mauritius (a tax haven country)
Holding 67% Shares in HEL

HEL (Hutch Essar Limited)

Situated in India
Formed by Merger of HTIL and Essar Group

VIH (Vodafone International Holdings)

Situated at Netherland
Subsidiary of Vodafone Group Plc

Vodafone petition to HC
and SC
Instead of responding to the Notice of Indian
Revenue Authorities, VIH filed a writ petition to
the Honorable Bombay High Court challenging
jurisdiction of Income Tax Department.
December 2008

The Honorable Bombay High Court upheld

the matter in favor of Indian Revenue
Authorities.
VIH filed Special Leave Petition (SLP) before the
Honorable Supreme Court of India. The Supreme Court
disposed the case with a direction to Tax
Authorities to decide the preliminary issue of
January 2009
jurisdiction.

Vodafones Plea

The provisions were not applicable to the current case and the
primary obligation to discharge the tax was with the payee (Hutchison
Telecommunications International Limited)

Unless the payee had defaulted in making payment of taxes, on demand

by the Revenue authorities, tax could not be recovered from the payer

The withholding tax provisions cannot have extra-territorial

application i.e. cannot apply in an offshore transaction involving two non
residents in respect of a capital asset (i.e. shares) and payment outside
India

The transaction is not chargeable to tax in India since it involves transfer

of shares of a non-resident company by one non-resident to another
and is not a transfer of a capital asset situated in India

The High Court Decision

It holded that the notice is legally tenable and thus dismisses the writ
petition
The following are the observations made by the High Court:
Income was earned towards consideration for transfer of its
business/economic interests as a group.
The subject matter of the present transaction is nothing but transfer of
interests, tangible and intangible in Indian companies and not an
innocuous acquisition of shares of a Cayman Islands Company
The interest in Telecom License is jointly held with the Essar Group
along with the use of Brand & Goodwill and non-compete rights given
by HTIL and so there is a right to enter into Telecom Business in
India, with a premium for the controlling interest

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The High Court Decision (Contd)

As there was admittedly a transfer of controlling interest in the Indian
company, there was an extinguishment of rights and relinquishment by the
transfer or in the shares of the Indian company which constituted a transfer
The shares in the Cayman company were merely the mode or the vehicle to
transfer the assets situated in India
The choice of the assesse in selecting a particular mode of transfer of such
assets will not alter or determine the nature or character of the asset
As the assesse (Vodafone) had wilfully failed to produce the primary/original
agreement and other prior and subsequent agreements/documents , so it was
impossible to appreciate the true nature of the transaction and the constitutional
validity of Income-tax provisions could not be gone into
It is settled law that a writ cannot be entertained against a mere show-cause
notice unless the Court is satisfied that the show cause notice was totally
unjustified in the eye of law for absolute want of jurisdiction of the authority to
even investigate into facts
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