Tax tribunal rules against Vodafone, says transfer pricing case within IT dept's jurisdiction

I-T dept has jurisdiction, says ITAT

British telecom major Vodafone’s tax woes have come back to haunt the company in India with the Income Tax Appellate Tribunal (ITAT) saying on Wednesday that the income-tax (I-T) department has jurisdiction in the Rs 8,500 crore transfer-pricing tax dispute involving the sale of its call centre business to Hutchison in 2007.

ITAT was hearing a plea of Vodafone India Services, made in 2012, challenging the jurisdiction of the tax department in issuing a draft transfer-pricing order that sought to add Rs  8,500 crore to Vodafone's taxable income for FY08.

The order came after the Bombay High Court had refused to intervene in the matter earlier and asked the Tribunal to hear the case on a day-to-day basis. The matter will now go back to the HC as Vodafone can appeal against the ITAT order, a tax lawyer said. The I-T department had asked Vodafone to cough up Rs 3,700 crore as tax last year for sale of its call centre business to Hong Kong-based Hutchison in 2007. A mail sent to Vodafone did not elicit any response till the time of going to press.

This is not the only tax dispute that Vodafone faces in India. A separate capital gains tax dispute between the tax department and Vodafone had resulted in the former losing its plea in the Supreme Court. Later, the government came out with a retrospective tax law to tax the company, which was severely criticised and the matter is now under arbitration.

In an another dispute, the Bombay High Court had in October this year ruled in favour of Vodafone saying it need not to pay an additional tax of Rs 3,200 crore as demanded by I-T authorities in a separate case. The tax department had said Vodafone India under-priced shares in a rights issue to its parent. The tax demand was for two financial years ending March 2011. The amount included tax and interest for the tax demand for assessment year 2009-10.

On Wednesday, the Tribunal did not accept the valuation of the tax department and asked it to revise Vodafone India’s taxable income. The ITAT said the sale of a call centre business is an international transaction and the assignment of call option did take place. The tax authority’s draft transfer-pricing order was issued in December 2011, but the British company argued that the transaction does not attract tax.
 

The income tax department had asked Vodafone to pay Rs 3,700 crore as tax last year after the sale of the call centre business. 

A mail sent to Vodafone did not elicit any response at the time of publishing this report. 

This is not the only tax dispute Vodafone is facing in India.  A separate capital gains tax dispute between the Indian tax department and Vodafone had resulted in the tax department losing its plea in the Supreme Court. Subsequently, the Indian government issued a retrospective tax law under which Vodafone would have to pay. Then finance minister Pranab Mukherjee, now the country’s presidential, had faced severe criticism for the move, with industry experts saying a retrospective tax would cloud the foreign investment climate in the country. That issue is now under arbitration.

In a separate tax-related case, the Bombay High Court in October this year ruled in favour of Vodafone saying it need not pay additional tax of Rs 3,200 crore as demanded by income tax authorities.  The income tax department had alleged that Vodafone India under-priced shares in a rights issue to its parent. The tax demand was for two financial years ended March 2011. The amount included tax and interest for the tax demand for assessment year 2009-10.