Vodafone case: CBDT to file caveat in SC

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New Delhi: The Bombay High Court's dismissal of the Vodafone petition challenging the income tax department “has strengthened the hands of the department,” NB Singh chairman of the Central Board of Direct Taxes said on Thursday.

Responding to Vodafone's decision to file an appeal in the Supreme Court, the CBDT chairman said the department will file a caveat before the court soon. This will ensure that the court does not give a fresh ruling or a stay order without the knowledge of the department or without hearing their contention.

While ruling in favour of the revenue department on Wednesday, the High Court has continued a previous stay on the department's show cause notice for another eight weeks. Although the exact tax liability is yet to be ascertained, the department estimates that Vodafone will have to pay $2 billion in taxes, Singh added.

The Bombay High Court on Wednesday dismissed a petition by telecom major Vodafone International Holdings BV challenging two show cause notices by the revenue department for payment of capital gains tax for its acquisition of a 52% stake in Hutch Essar in 2007. Vodafone had argued that since the transaction is between two offshore companies, lies beyond the purview of the Income Tax Act.

The ruling will also enable the CBDT to investigate many other similar transactions and cases. “The decision has upheld the jurisdiction of the tax authority and it is up to the department to decide whether there is a tax liability in such transactions,” Singh added.