Court says yes to Vodafone tax claim, no to blocking de-merger

The Supreme Court on Wednesday said that while the tax authorities could move under the law to raise tax claims against Vodafone, in another case involving the de-merger of its towers business, the assets transfer, as such, cannot be blocked.

The apex court bench of Justice Fakkir Mohamed Ibrahim Kalifulla and Justice Shiva Kirti Singh told the income tax department that there existed enough protection in the Gujarat High Court order for it to raise the tax demands.

In effect, the bench upheld the verdict of the Gujarat High Court that had approved the de-merger of Vodafone's tower assets in 2012, even as the tax authorities had claimed a loss of Rs.1,200 crore to the exchequer on account of capital gains and stamp duties.

Challenging the Gujarat High Court order, the tax authorities had submitted to the apex court that the mobile phone major had used some objectionable ways to evade the said taxes, while it transferred its towers infrastructure to a separate company.

While reiterating the high court order, the apex court said the right of the tax department was kept intact to carry out appropriate proceedings regarding the recovery of tax from the transfer as the case may be, or from any other person who is liable.

The bench asked why the tax department was interfering when it was a private arrangement.

While granting sanction for the scheme of arrangement, the Gujarat High Court had protected the right of the Income Tax Department to recover the dues, in accordance with law, irrespective of the sanction of the scheme.

Vodafone is facing another tax liability claimed by the authorities, amounting to Rs.11,200 crore and pertaining to its 2007 acquisition of Hutchison Whampoa's stake in India's telecom company Hutchison Essar. The company has challenged the claim.

In another tax dispute with the same group, the government last month decided not to contest the Bombay High Court's order on Oct 10, 2014 that Vodafone was not liable to a pay tax demand of Rs.3,200 crore in a case transfer pricing.