Hutchison vodafone tax case too much knowledgeable

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The case is too interesting as well as awesome. Please enjoy reading the case, if any query, then post it on harshitbansal@outlook.com

The case is too interesting as well as awesome. Please enjoy reading the case, if any query, then post it on harshitbansal@outlook.com

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  • 1. By Harshit Bansal at www.slideshare.net
  • 2. Corporate Structure Hutchison Essar Ltd (HEL)  Indian Company  Providing Telecom Services Hutchison Telecom International Ltd (HTIL)  Foreign Company (Situated at Hong Kong)  Holding 100% shares in CGP Investments Holdings Ltd CGP Investments Holdings Ltd (CGP)  Foreign Company (Situated at Cayman Island, Mauritius)  Holding 67% share in HEL  Dummy Company only formed to have benefit of Mauritius Route, as it’s a Tax Heaven means no tax on any transaction By Harshit Bansal at www.slideshare.net
  • 3. Diagrammatic View CGP Investments Hutchison Telecom Holdings International Ltd. Ltd. (Hong Kong) (Mauritius) Holding 67% share in HEL Hutchison Essar Ltd. (Indian Company) By Harshit Bansal at www.slideshare.net
  • 4. Facts of the Case Hutchison Telecom International Ltd. (HTIL) had transferred 100% shares of CGP investments for Rs. 560 billion to Vodafone International Holdings BV Indirect transfer of rights in HEL, by HTIL to Vodafone International Holdings BV Vodafone International Holdings BV  Foreign Company (Situated at Netherlands)  Subsidiary of Vodafone Group plc (Situated at London) By Harshit Bansal at www.slideshare.net
  • 5. Understanding of Facts of the CaseDiagrammatically Vodafone HTIL (Hong Kong) Group plc 100% Holding in (London) CGP(Mauritius) CGP InvestmentsVodafone (Mauritius) 67% Holding inInternational Hutchison EssarHoldings BV Ltd.(India)(Netherlands) Vodafone Hutchison Essar Ltd. Essar Ltd (Indian Co.) (Indian Co.) Turned to By Harshit Bansal at www.slideshare.net
  • 6. Assessing Officer’s Appeal Transfer of rights in HEL(India) via CGP Investment Holdings Ltd. CGP Investment Holdings Ltd. is merely created to take benefits of Tax Heavens in Cayman Island, Mauritius As Capital gains arise on transfer of shares are exempt in Mauritius But if we consider a concept of Substance over Form, which clearly depicts that substance of a transaction is to transfer the rights in HEL(India) By Harshit Bansal at www.slideshare.net
  • 7. Diagrammatic Understanding HTIL (Hong Kong) 100% Vodafone Holding in Group plc CGP(Mauritius) (London) CGP Investments (Mauritius) 67% Holding in Hutchison EssarVodafone Ltd.(India)InternationalHoldings BV(Netherlands) Vodafone Hutchison Essar Ltd. Essar Ltd (Indian Co.) (Indian Co.) Turned to (Transferred the controlling interest of HTIL in HEL to Vodafone)
  • 8. Bombay High Court Decision It was held that appeal done by CIT is up to the mark because of the following reasons:  As the purpose of entering into agreement is to acquire the controlling interest, which HTIL(Foreign Co.) had in HEL(Indian Co.) and as acquired(controlling interest by Vodafone International  Income Tax Reference: Income shall be deemed to be accrued or arise in India U/s 9(1)(i) By Harshit Bansal at www.slideshare.net
  • 9. Assessee’s Explanation If today you buy 10% of the shares of a particular company, let us say Jet Airways, does this mean that you automatically own 10% of all of Jet Airways’ assets? Does this mean that 10% of the entire fleet of aircraft now belongs to you? By buying out a company that holds 67% of HEL, it doesn’t mean that Vodafone now owns 67% of the assets of HEL. Those assets continue to belong to HEL, which is a separate legal entity based in India. Read the Company law, Dam nit. By Harshit Bansal at www.slideshare.net
  • 10. Assessee’s Defend DiagrammaticallyExplained Vodafone International Holdings BV (Netherlands) 100% Holding in CGP Vodafone’s Defend By becoming holding co. of CGP, it doesn’t means CGP Investments that I(Vodafone) (Mauritius) 67% Holding holds 67% of all in Hutchison Essar assets in Ltd.(India) HEL(Indian Co.) Hutchison Essar Ltd. (Indian Co.) By Harshit Bansal at www.slideshare.net
  • 11. Supreme Court Decision Vodafone filed a review petition in supreme Court in January, 2012. Supreme Court reversed the decision of Bombay High court because:  Assessing officer had no jurisdiction to tax the foreign transaction, as sale of shares in Cayman Island  Transfer of shares in CGP doesn’t amount to transfer of Capital asset situated in India, as per section 9(1)(i) under the 4th Limb  Bombay High Court Judgement held that transfer of controlling interest, which is not an identifiable or distinct capital asset, independent of holding of shares and also not covers in Definition of Capital Assets U/s 2(14)  As Capital Asset is not taxable in India ,so there is no question of Deducting Tax at Source U/s 195(1) By Harshit Bansal at www.slideshare.net
  • 12. Supreme Court’s Decision These are the important three points on the basis of which Supreme Court has given the decision in Favor of the Vodafone:Section: 9(1)(i) Section: 2(14) Section: 195(1)• Transfer of Shares • As per Bom. H.C. • As capital asset not• Not amounts to controlling interest taxable in India, transfer of • Which not covered • No question Tax• Capital Asset under definition of Deducted at Source situated in India Capital Asset • U/s 195(1) • U/s 2(14) By Harshit Bansal at www.slideshare.net
  • 13. Transaction & its Consequences Transactions &Previous Scenario Consequences Current Scenario HTIL (Hong •Transfer of shares of Vodafone CGP, from HTIL to Kong) 100% Vodafone. International Holding in •For Consideration of Holdings BV CGP(Mauritius) Rs. 560 billion. (Netherlands) 100% •Which leads to Capital Holding in CGP Gain Tax on HTIL for Rs. 125 billionCGP Investments •The shares of this company(CGP) are sold CGP Investments(Mauritius) 67% Holding in Mauritius, which is a (Mauritius) 67% Holdingin Hutchison Essar tax heaven. in Hutchison EssarLtd.(India) Ltd.(India) •After the change of holding co. •Name changed to Hutchison Vodafone. •This depicts that shares Vodafone Essar Ltd Essar Ltd. transferred to gain the (Indian Co.) rights in HEL(Indian Co.) (Indian Co.)
  • 14. Retrospective Amendments (Done by Finance Act 2012)Sections Amendment Done Co relate with CaseAmended•Section 9(1)(i): •All incomes accrued or arise, •Explanation on “capitalIncome Deemed whether directly or indirectly: assets” provides that:to Accrued or  through transfer of a shares of CGPArise in India “capital asset” situated in Investments India. (Registered Outside •Explanation for Capital Assets: India), Any Entity( Whether registered but value of shares Outside India) deemed to be situated are derived from the in India, value of asset located if the share of that Entity derived in India. from the value of asset located in India.•Section 2(14): Explanation added regarding •Hutchison Hong KongDefinition of meaning of property: having rights in Indian Co.Capital Assets •“property” includes: •Examples: Right to •Any rights in an Indian company appoint directors, Right to •Any rights Harshit Bansal anwww.slideshare.net hutch brand etc. By in relation to at Indian use Co.
  • 15. Retrospective Amendments (by Finance Act 2012)•Section Explanation Added regarding Hutchison Hong Kong2(47): meaning of Transfer: transferred Rights inDefinition of •“transfer” includes: Indian Co.(CGP) toTransfer •Creation of any interest in any Vodafone asset in any manner whether •Created interest of indirectly or otherwise Vodafone in an Indian •by way of an agreement(whether Co. by Indirect means entered inside or outside India) •by way of an agreement or otherwise entered outside India •through Transfer of shares •through transfer of Outside India shares in Cayman •Which effects the transfer of Island, Mauritius rights in an Indian Company •Which effects the transfer of rights from HTIL to Vodafone By Harshit Bansal at www.slideshare.net
  • 16. Supreme Court V/s AmendmentsSupreme Court Judgments Nullified by the Amendments (by FA 2012)Section: 9(1)(i) Explanation for Capital Assets U/s 9(1)(i): Transfer of Shares Any Entity( Whether registered Outside Not amounts to transfer of India) deemed to be situated in India, Capital Asset situated in if the share of that Entity derived from the India value of asset(HEL) located in India.Section: 2(14) Explanation added regarding meaning of As per Bom. H.C. controlling property: interest of HTIL in HEL “property” includes: Which not covered under Any rights in an Indian company definition of Capital Asset Any rights in relation to an Indian Co. U/s 2(14) Rights includes Rights in Management, Controlling interests etc. By Harshit Bansal at www.slideshare.net
  • 17. Supreme Court V/s AmendmentsSection: 195(1) Section: 195(1) for the removal of doubts to As capital asset not clarify that obligation to deduct tax at source shall be deemed to have always extended taxable in India, to all persons, whether resident or non- No question to deduct resident has:- Tax at Source a residence or place of business or U/s 195(1) business connection in India; or any other presence in any manner whatsoever in India. By Harshit Bansal at www.slideshare.net