odafone's plea against I-T rejected

Vodafone's plea against I-T rejected

24 Jan 2009, 0304 hrs IST, ET Bureau

NEW DELHI: In a decision that could have implications for business deals struck outside the country involving Indian companies, the Supreme

Court on Friday refused to entertain a plea by the world’s top mobile operator by sales, Vodafone, challenging a tax claim on its $11-bn acquisition of Hutchison Essar.

While deciding on the special leave petition, the court asked the assessing authority of the income-tax department to decide if it had the jurisdiction to claim a $4-bn payout — $1.7 bn tax plus penalty of equal amount and interest — on the deal, the largest by a foreign firm in India, that was executed abroad.

“The income-tax authority will look into all the relevant material to arrive at the conclusion. We are in possession of all relevant documents of agreement between Vodafone and HTIL,” said Mohan Parasaran, additional Solicitor-General who represented the government.

Commenting on the decision, a press statement issued by Vodafone said: “Given the fact that the petition filed by Vodafone involves important questions of jurisdiction, the honourable Supreme Court of India has asked the tax authorities to decide whether it has jurisdiction to proceed against Vodafone (and no other issues). Should Vodafone be aggrieved by the tax authorities’ decision, it has been permitted to approach the High Court.”

“It’s only a show-cause notice,” said a bench comprising Justice SB Sinha and Justice MK Sharma, when Vodafone counsel Fali S Nariman stood up to argue the case.

The bench headed by Justice SB Sinha declined to hear the Vodafone plea challenging a Bombay High Court judgement on December 3, 2008, dismissing a petition by Vodafone International Holdings BV, contesting a show-cause notice by the income-tax department.

The income-tax department had issued a show-cause notice to Vodafone International Holdings under section 201(1) of the Income-Tax Act, asking it to explain as to why it should not be penalised for its failure to pay tax on the deal. In response, the telco filed a writ petition in the Bombay High Court on January 28, 2008 challenging the show-cause notice.

Income-tax department officials said jurisdiction was the key to taxability in any transaction. The department’s special counsel and former director general (international taxation) GC Srivastava said: “Issue of jurisdiction relates to chargeability of income to tax.” Vodafone will now have to convince the assessing officer that the Indian tax authorities did not have jurisdiction to tax its $11.2-bn purchase of 67% stake in Hutchison Essar in February 2007.