Vodafone gets new Rs 3,000 crore tax demand; court orders stay

The Bombay High Court today stayed a new income tax demand of Rs 3,000 crore on Vodafone India Services in an alleged transfer-pricing case from 2010-11.
The new case pertains to the transfer of shares by Vodafone India Services to its parent company in FY11.
Vodafone, the country's second-largest telecom operator, is already fighting a separate Rs 3,700 crore tax notice in a transfer-pricing case related to the sale of its Pune BPO arm to an offshore group entity in FY08.
The company is also in talks to resolve a capital gains tax demand from the government, even after it won the case in the Supreme Court.

The case arose from Vodafone's purchase of Hong Kong-based Hutchison Whampoa's stake in Hutchison Essar for over USD 11 billion in 2007. According to the IT department, the British telecom company did not deduct capital gains tax from the seller.
Hearing Vodafone's plea, a bench headed by Chief Justice Mohit Shah granted an interim stay till March 7 on the demand made by the Income Tax department in an order yesterday.

The court also ordered status quo on the new income tax order and asked the assessment officer not to take any steps until further orders.
The income tax department had issued a show cause notice to Vodafone on January 17, asking the company to pay Rs 3,000 crore as transfer pricing adjustment. The department said the shares issued to Vodafone's parent company had been undervalued.

After getting the show cause notice, Vodafone moved the Bombay High Court, challenging the transfer pricing adjustment of Rs 3,000 crore. The company today pleaded with the court to stay the demand until the matter was heard on merit.
Transfer pricing refers to the rate at which transactions take place between two related parties, usually belonging to the same group.