Hearing on Vodafone tax plea ends

Arguments in the case between Vodafone and the income-tax department ended on Wednesday, with both sides making closing arguments. 

The Indian tax department is claiming $2 billion by way of taxes on Vodafone. The taxman says the amount was to be withheld from Hutchison in 2007, when the UK-based telecom operator bought a majority stake in India’s second-largest GSM telecom operator Hutchison Essar for $11 billion. 

The Mumbai High Court has to decide whether the Indian tax authority has jurisdiction over the transaction between Vodafone and Hutchison, as it was carried out overseas. Vodafone says it is not liable to pay tax because the deal was not between Indian companies. However, the Income Tax department said that part of the stake acquired by Vodafone was held by Analjit Singh, the promoter of the Max Group and Asim Ghosh, the former CEO of Vodafone’s Indian operations. Indian tax laws are therefore applicable to the transaction, the taxman said. 

Vodafone’s lawyer Harish Salve said all of the equity stakes were ultimately held overseas, and therefore this argument does not hold ground. 

Vodafone says the stake changed hands through a subsidiary in Cayman Islands that held shares in Hutchison Essar, now called Vodafone Essar, through arms in Mauritius which in turn had arms in India. Apart from the transaction being offshore, India has a double-taxation tax treaty with Mauritius. Under the treaty, investments made in India from Mauritius are not subject to tax. The current tax regime also sheds no light on indirect tax. The two sides will make some further written submissions. An early decision is expected on the matter.