1. B u s in e s s L a w BY, Jagan tanikella MBA 1st year
2. Vodafone international VSINCOME TAX DEPARTMENT
3. • Feb 2007: Vodafone buys 67% stake in Hutchinson Essar limited an Indian entity for 11.2 billion.
4. Vodafone International Holdings 100% shares for 11.2 dollars CGP Holdings Limited at Cayman islands Controls 67% share of HEL through FDIHutchison Essar limited (Indian entity)
5. • Feb 2007: Vodafone buys 67% stake in Hutchinson Essar limited an Indian entity for 11.2 billion.• Sept 2007: Income tax dept issues a show cause notice to vodafone.
6. IT Department:• The subject matter of the transaction between HTIL and Vodafone was a transfer of 67% in HEL.• The transaction constitutes a transfer of composite rights of HTIL in HEL and not merely the transfer of a single share in CGP. The acquisition of a share is only one means to achieve the object.• Several vital rights were acquired by Vodafone (including licensto conduct telecom business in India, management rights, loans, option agreements, branch license, etc) and that such rights had direct nexus with India.• The transaction was chargeable to tax in India and that Vodafone was therefore required to withhold appropriate taxes on payments made to Hutch.
7. • Feb 2007: Vodafone buys 67% stake in Hutchinson Essar limited an Indian entity for 11.2 billion.• Sept 2007: Income tax dept issues a show cause notice to vodafone.• October 2007: Vodafone files a writ petition in the bombay high court.
8. Vodafone:• Section 9 seeks to tax capital gains only if they arise from transfer of capital assets situated in India. The impugned transaction involved the transfer of shares of a foreign company outside India and was hence not taxable in India.• Several countries have in their legislation “look-through” provisions by which a tax is imposed on gains arising out of a transfer of shares outside the country if it results in the passing of control over a company which holds specified assets/property in the country. Section 9 does not contain any such “look-through” rule. Absent such rule, no tax can be imposed in respect of the impuned transaction under Section 9 of the Act. A “look-through” provision cannot be inserted through judicial intervention.
9. • In the present case, there is no income that accrues or arises in India since the right to receive the money was outside India under a contract entered into outside India and payment was made outside India.• No tax was required to be withheld by Vodafone from payments made to HTIL under Section 195 of the Act, since the transaction was not chargeable to tax in India.• Section 195 of the Act does not have extra territorial operation and would therefore not apply to Vodafone, which is a non-resident without any presence in India.
10. • Feb 2007: Vodafone buys 67% stake in Hutchinson Essar limited an Indian entity for 11.2 billion.• Sept 2007: Income tax dept issues a show cause notice to Vodafone.• October 2007: Vodafone files a writ petition in the Bombay high court.• September 2010: Bombay high court gives a verdict in favor of IT department.• September 2010: Vodafone challenges the Bombay HC order in supreme court.• October 2010: IT dept issues tax notice for Rs11200crore plus interest.• January 2012: Supreme court delivers a judgment in favor of Vodafone and it is not liable to pay the tax.
11. Direct taxes code bill 2010:• Under the proposed rules, transactions where a company owns an underlying asset in which the Indian assets are in excess of 50 per cent, the capital gain is to be correspondingly charged on a proportional basis.• The provision essentially implies that if 70 per cent of an acquired foreign company’s assets are in India, the acquirer will have to pay 70 per cent of the capital gains tax accruing from the transaction.