Vodafone to pay Rs 200 crore; final ruling in March

Written by fe Bureau | New Delhi | Updated: Dec 28 2013, 10:31am hrs
The Income Tax Appellate Tribunal on Friday asked Vodafone Group Plc to pay R200 crore in two tranches by February 15, apart from furnishing a corporate guarantee undertaking to pay up the entire taxable amount of R3,700 crore in case it loses a transfer pricing case relating to assignment of call options relating to 2007.

The tax tribunal has fixed the final date of hearing on the matter on March 19.

According to the tribunals interim order, Vodafone Group needs to pay R100 crore by January 15 followed by another R100 crore by February 15 along with the bank guarantee.

The notice to pay R3,700 crore in a transfer pricing case was served on Vodafone around a week ago once the dispute resolution panel (DRP), a collegium of three income tax commissioners that decides on disputes relating to tax matters, ruled in favour of the revenue department. The tax notice was for assessment year 2008-09.

The company had filed its appeal against the DRPs order in the tribunal on December 23.

The case relates to its Indian unit Vodafone India Services (VISPL), which had written agreements (call options) with Max Group chairman Analjit Singh and Vodafone's former CEO Asim Ghosh to buy their shares in the company. Prior to Vodafone, Hutchison, which held the majority stake in the then Hutch-Essar entity, had this agreement, which was transferred to Vodafone when in February 2007 it acquired Hutchison's 67% stake in the joint venture.

The income tax department raised the tax demand stating that the share transfer by Singh and Ghosh had taken place in 2007 to VISPL. However, the company disputes this, stating that it simply had an agreement but no transaction was done so there's no tax payable in the matter. Company sources said that the matter was part of the overall Rs 11,000-crore tax case that the company fought against the revenue department in the Supreme Court and won.

Vodafone can confirm that the Income Tax Appellate Tribunal (ITAT) has granted a stay of execution of the Transfer Pricing Order which Vodafone received in December 2011, a Vodafone spokesperson said. Vodafonemaintains that there is no tax payable on this transaction and willcontinue to strongly defend its position against this Order.

Earlier in the month it had stated: Vodafone maintains that there is no tax payable on this transaction and the company will file an appeal before the tax appeal tribunal as soon as possible.

The facts of this case including the transaction structure were examined in considerable detail by Indias Supreme Court, which delivered an unambiguous judgment affirming that there is indeed no tax due. Vodafone will continue to strongly defend its position against this order, Vodafone said.

A company source told FE that the exercise of the call option on Singh and Ghosh's shares would take place now once the Foreign Investment Promotion Board approves Vodafone's proposal to hike its stake in the Indian arm to 100%. It (transfer) did not take place then. It was just an agreement and the Supreme Court has upheld this fact, said the source.

The case under review is different from another transfer pricing case in which the company is embroiled and on which hearings have begun before the DRP.

There Vodafone has challenged the jurisdiction of the IT department in issuing a transfer pricing order that sought to add Rs 8,500 crore to its taxable income. The department had alleged that Vodafone India had under-priced the issue of shares to a Mauritius-based group company. Transfer pricing is the value at which companies trade products, services or assets including shares between units, mostly the parent company, in different countries.

The company claimed that this was a domestic transaction and did not fall under the jurisdiction of transfer pricing norms.

The Bombay High Court asked the company last month to approach the DRP and if the matter was not settled there it could come back to the court.