The Vodafone Tax Case is one of the most controversial Tax dispute in the history of Indian Income Tax Law. FOR FREELANCE POWERPOINT PRESENTATIONS ON ANY TOPIC, MAIL ME AT sonalkumari8991@gmail.com

5. CGP
INVESTMENTS
LIMITED
HONG KONG
HOLDS
100%
HOLDS
67%
NETHERLANDS
CAYMAN ISLANDS
INDIA

6. • Hutchison Telecom situated in Hong Kong is a non resident
with no Tax implications in India.
• CGP Investments Ltd. situated in Cayman Islands which is a
Tax Haven is a dummy company and 100% subsidiary of
Hutchison Telecom. It was formed merely for Tax Saving
purposes in 1998 by Hutchison Group.
• Hutchison Essar is an Indian company in which CGP Ltd held
67% of its shares and Essar held 33%
• Vodafone is a company incorporated in Netherlands and
hence treated as Foreign Company with no Tax Implications
in India.

7.  There was a gradual increase in FDI of India from year 2006-07.
The highest share of FDI being in Telecom Sector.
 Due to this sudden rise in FDI in Indian Telecom Sector,
Vodafone Netherlands also wanted to expand its operations in
Indian Telecom Market.
 Now, this can be done in two ways.
 First, Direct method, by building infrastructure in India, Buying
and holding assets, recruiting officials, employees and workers
etc.
 Second, Indirect Method, by acquiring an already set up
company in India.
 Vodafone Netherlands opted for second method.

9.  Now, acquiring a company in India will involve a huge flow of Capital
Gain Taxes.
 To avoid these tax burden, Vodafone Netherlands, rather than buying
an Indian Company directly, again opted to go for an indirect route.
 Vodafone Netherlands purchased CGP Ltd of Cayman Island from
Hutchison Telecom Hong Kong.
 This transaction had no Tax Implications as the asset sold is situated in a
Tax Haven Country.
 The Impact of this Transaction was, Vodafone Netherland indirectly
acquired Hutch Essar an Indian Company (as CGP Ltd. Cayman Islands
had 67% shares in Hutch Essar) and thus entered into Indian telecom
Market.

10. HOLDS
100% SHARES
HOLDS
67% SHARES
VODAFONE
NETHERLANDS
CGP
INVESTMENTS
CAYMAN
ISLANDS
HUTCH ESSAR
INDIA
STEP DOWN
SUBSIDIARY
OF
VODAFONE
NETHERLANDS

13.  The transaction was carried out for the transfer of rights in Hutch Essar
India via CGP Investments Ltd of Cayman Islands.
 CGP Investments is merely a dummy company having no business at all
created solely for the purpose of tax exemption purposes.
 As CGP Investment is situated in Tax Haven, the capital gains arising on
the transaction gets exempted.
 But considering the principle of Substance Over Form, the substance of
the transaction was to transfer the rights of Hutch Essar India to
Vodafone Netherlands by having NIL Tax liability.
 Thus, Vodafone Netherlands is liable to deduct and pay TDS on this
transaction as the underlying asset i.e. Rights and Entitlement in Hutch
Essar is situated in India

14. DEC
2008
JAN
2009
SEPT
2007
 Income Tax Department issued a show
cause notice to Vodafone.
 Instead of replying to notice of IT deptt.,
Vodafone filed a Writ Petition in Bombay
High Court.
 Bombay High Court held that Tax
Authorities had jurisdiction over the matter.
 Vodafone then challenged this Decision in
Supreme Court.
 Supreme Court then directed the Indian
Tax Authorities to first determine the
Jurisdictional Challenge raised by
Vodafone.

15. MAY
2010
 Tax Authorities held that they had the
jurisdiction of the case u/s 201 of Income
Tax Act,1962
 Again this order was challenged by
Vodafone in Bombay High Court.
SEP
2010
 Bombay High Court dismissed Vodafone’s
challenge
 Then Vodafone again files a Special Leave
Petition against the High Court order
before the Supreme Court.
NOV
2010
 SLP was admitted and Vodafone was
directed to deposit a sum of INR 25000
million within three weeks and provide a
bank guarantee of INR 85000 million within
eight weeks from the date of its order.

16. JANUARY 2012
 The Judgment was passed in FAVOUR of Vodafone.
 Supreme court said that Section 9(1)(i) of the Act
does not cover indirect transfers of capital
assets/property situated in India.
 Accordingly Supreme Court concluded that the
transfer of the share in CGP Cayman Islands did not
result in the transfer of a capital asset situated in
India, and gains from such transfer could not be
subject to Income Tax.
 Supreme Court held that Indian Income Tax
Department had NO JURISDICTION to levy tax on
overseas transaction between companies
incorporated outside India.

18. Section
9(1)(i)
Income
deemed to
accrue or arise
in India
Section
2(47)
Definition of
Transfer
Section
2(14)
Definition of
Capital Assets

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