Fresh I-T notice to Vodafone

The telecom company claims it has no liability in any event.

The Income Tax (I-T) Department today said it had the jurisdiction to tax the $11.1-billion Vodafone-Hutchison Essar deal of February 2007.

“We have jurisdiction over taxing Vodafone. Jurisdiction order has been issued ...we will send the tax demand to them within a few days,” Central Board of Direct Taxes (CBDT) Chairman S S N Moorthy told PTI.

Though Moorthy did not quantify the tax liability for Vodafone, it is estimated to be around $2 billion (about Rs 9,272 crore). The tax department’s order explains why it should pay capital gains tax on the Vodafone-Hutch deal.

The company has been arguing that it is not liable to pay tax as the deal was done offshore. However, the I-T Department is of the view that Vodafone is liable to pay tax even if it is an offshore deal, because the assets are in India.

The department also said it had issued an additional show-cause notice seeking more details. Vodafone will get an opportunity for a personal hearing, according to the order.

“Vodafone remains fully confident that no tax is payable by Hutchison on this transaction and that Vodafone has no liability in any event; and all of the taxation and legal advice received continues to be consistent with this view. The Supreme Court granted Vodafone the right of appeal to the Bombay High Court if we disagree with the Tax Authorities' determination,” Vodafone said in response to the order.

The I-T department had sent a show-cause notice to Vodafone on October 31 last year, seeking tax, which was missed when Vodafone clinched a $11.2-billion deal to buy 67 per cent stake in Hutchison Essar in 2007. The entity, now called Vodafone Essar, is the second-largest telecommunications company in India, with over million customers.

In March, Vodafone made detailed submissions in response to the tax department’s notice and provided it with a response amounting to 24 annexures. The department had said that Vodafone was liable to pay as much as $2 billion in capital gains tax.

Last year, Vodafone had moved courts against the tax claim on the Vodafone-Hutch deal. The Supreme Court quashed Vodafone’s plea and asked CBDT to look into the matter. After this, CBDT had issued a show-cause notice to Vodafone.