The income-tax department on Friday asked telecom major Vodafone to pay Rs 11,218 crore tax within 30 days on the capital gains from its 2007 purchase of Hutchison Whampoa’s mobile business in the country. The Supreme Court had, on September 27, asked the department to determine the potential tax liability over the $11.2 billion deal before October 25. The demand includes Rs 7,900 crore tax and Rs 3,318 crore as interest for 42 months.
However, Vodafone, the world’s largest telecom firm by revenue, said it ?strongly disagrees? with the tax calculation. A Vodafone Group Plc spokesperson said: ?We continue to believe that it (Vodafone International Holdings BV, Netherlands) is not liable for any tax on this transaction involving the transfer of a company outside of India. Further, Vodafone was the acquirer and not the vendor and has made no gain on the transaction. In this ?test case?, the tax authority is attempting to interpret Indian law as it has never been interpreted for the past 50 years, and this interpretation also goes against internationally recognised tax norms.?
Said Amitabh Singh, partner at Ernst & Young: ?The tax department has proceeded with the stance it had maintained. Vodafone has 30 days to pay the demand and to appeal at the higher level against the tax demand. The demand would be kept in abeyance till the matter is adjudicated at a higher level.?
The Supreme Court will set a date on October 25 for hearing Vodafone’s appeal challenging the Bombay High Court ruling that Indian tax authorities had jurisdiction over tax bills in cross-border deals. In its order, SC had given Vodafone liberty to approach the court for an appropriate remedy.
Vittorio Colao, CEO of Vodafone Group had earlier said the outcome of this tax case and India’s telecom regulatory situation would decisively impact the company’s investment decisions in India.
While upholding the department?s right to demand tax from Vodafone over the deal, the high court had held on September 8 that the tax liability on it, as the buyer, would only be to the extent of income attributable to the assets in India. The department, however, has raised a demand on the whole value of the deal, without any apportionment.
?The tax liability under section 201(1) and 201(1A) of the Income Tax Act is determined at Rs 11,218 crore….to be paid within 30 days of the receipt of the demand notice,? said the demand order, of which FE has a copy.
According to the I-T department order, ?Vodafone International Holdings BV, Netherlands is being treated as assessee in default under section 201(1) of the Income Tax Act, 1961.?