Vodafone International Holdings BV on Monday challenged the income tax department?s new demand notice asking the British telecom giant to pay around Rs 11,218 crore as tax on the 2007 Vodafone-Hutch cross-border deal that created Vodafone-Essar.
The department on October 22 had issued a new order raising a tax demand of Rs 11,217.95 crore on Vodafone International while treating it as an assessee in default for failure to deduct tax as required before making a payment of $11,076 million (about Rs 55,000 crore) to Hutchison Telecommunication International. The order came pursuant to the apex court?s directions on September 27 asking the assistant director of Income Tax (International Taxation) to determine the potential tax liability on the basis of apportionment within four weeks.
The department has been maintaining that Vodafone as the buyer was required to withhold the capital gains tax on its $11.01-billion Hutch-Essar deal. Hutchison controlled its Indian subsidiary through a Cayman Island company called CGP, whose shares were sold to Vodafone.
The bench headed by Chief Justice SH Kapadia adjourned the matter till November 15 after the telecom company said it was filing a new application challenging the new demand notice fixing its liability. It also gave time to the department to respond to the new application. Justice Kapadia also said the bench needed time to read the new demand notice after the department submitted the same in the court.
Challenging the October 22 order, Vodafone alleged that the actions of the department were pre-determined and pre-disposed and the entirety of the proceedings held between Sep 28 and Oct 20 were an empty formality, culminating in the impugned order. ?The order is clearly a deliberate distortion of the directions of the high court and has obviously taken place because the tax department, at the highest level, has decided that it would, one way or the other arrive at the figure of Rs 12,000 crore,? the new application stated, adding the impugned order deliberately distorts the clear findings of the high court which had rejected its case that the transfer of business in India (and not the transfer of a share) is what is taxable in India.