Vodafone challenges tax verdict in SC

British telecom major Vodafone today petitioned the Supreme Court against the recent Bombay High Court verdict on its dispute with the Income Tax (I-T) Department.

The I-T Department had sent a notice to Vodafone claiming capital gains tax for its purchase in 2007 of Hutchison Telecom International (HTIL)’s 67 per cent stake in Hutch Essar for $11.2 billion (Rs 55,000 crore). The department put Vodafone’s liability at Rs 12,000 crore. The latter contended the deal could not come under the tax department’s jurisdiction. Last week, the Bombay HC dismissed this plea and said the department had jurisdiction.

“The appeal challenges the recent High Court judgment on the issue of jurisdiction. Vodafone remains convinced that there is no tax to pay on the Hutchison transaction and we will continue to defend this position vigorously,” the company said in a statement to the media.

Vodafone argues the deal was done by two foreign entities: Hutchison Telecom International, based in the Cayman Islands, and Vodafone International Holdings BV, situated in Netherlands. Since the stake sale and purchase were done in foreign lands, it is not liable to be taxed in India.

The HC rejected this, but the verdict, pronounced by judges D Y Chandrachud and J P Devadhar, said the extent of liability could be negotiated between the company and the tax authority.

The HC decision on jurisdiction is being deemed a game changer for cross-border deals in India. The I-T department has always claimed that if the assets of a company involved in the deal are in India, they have the right to claim tax.