Vodafone Essar Gujarat has opposed income-tax department’s plea that challenged a Gujarat High Court’s August 2012 order that cleared its demerger scheme. The company on Monday told the Supreme Court that the scheme sanctioned by the HC for demerger of passive infrastructure assets and subsequent amalgamation into Indus Tower is over and the same has been filed with the registrar of companies and therefore, the department’s appeal has become infructuous.
Under the scheme, Vodafone Essar Gujarat and its six associate companies were permitted to transfer passive infrastructure assets of R15,000 crore to group firm Vodafone Infrastructure. The I-T department had challenged it, saying the scheme was intended to avoid capital gains tax of R3,500 crore and stamp duty of R600 crore — a charge Vodafone strongly denies.
The I-T department has objected to Vodafone’s demerger of towers to Vodafone Essar Infrastructure, contending it was the first step in an alleged tax avoidance arrangement prior to this entity’s amalgamation into Indus Towers, which also holds the towers of Bharti and Idea for common use. Tower sharing is encouraged by the government to keep costs low for making cellular telephony available in rural areas.
Senior counsel Harish Salve, appearing for the company, argued that the transferee company (Vodafone Infrastructure) under the demerger no longer exist, therefore, there is nothing left in the appeal to be considered. “Further the scheme was floated with the object of sharing of infrastructure as recommended by the working group under the Planning Commission,” Vodafone stated.
Stating that it was an attempt to consolidate assets to utilise them better, Salve informed the SC that the HC has specifically protected the interests of the tax department to initiate any appropriate proceedings regarding recovery of the tax from the companies and also held that such right of the revenue shall not be affected in view of the sanction of the scheme.
However, solicitor-general Ranjit Kumar told the bench headed by justice FMI Kalifulla that the question was about evading tax liability of capital gains by transferring the assets through a scheme of arrangement. “This is a fraud on the department… the department can still recover taxes,” he argued
The bench posted the matter for further hearing on November 27 after Kumar submitted that the department has also filed another appeal against the Delhi HC in some other similar cases where the demerger scheme of passive infrastructure of other Vodafone group companies have been sanctioned.