NEW DELHI: The Supreme Court on Friday set aside a Bombay High Court judgement asking Vodafone International Holding to pay income tax of Rs 11,000 crore on a deal abroad. In a big victory to Vodafone, apex court directed the tax department to return Rs 2,500 crore deposited by Vodafone in compliance of its interim order within two months.
Vodafone, challenging the tax bill over its $11 billion deal to buy Hutchison Whampoa Ltd's Indian mobile business in 2007, had appealed to the Supreme Court after losing the case in the Bombay High Court in 2010.
"The government has no jurisdiction over Vodafone's purchase of mobile assets in India as the transaction took place in Cayman Islands between HTIL & Vodafone," Chief Justice S.H. Kapadia said.
He said for the stability of economic operations, investors should know where they stand.
He said Hutch Essar, whose Indian operations were acquired by Vodafone, was not a fly-by-night operator and was in India since 1994 and had contributed Rs 20,242 crore by way of direct and indirect taxes.
Justice Kapadia delivered the majority judgment alone with Justice Swatanter Kumar. However, Justice K.S. Radhakrishnan differed with the judgment.
Lawyer Harish Salve, who represented Vodafone said, "I am very happy with the verdict; very few countries can boast of such a judiciary. The verdict will boost people's confidence on the Indian judiciary."
Vodafone shares in London rose 1.4 percent after the verdict. The decision will come as a relief to international investors who feared the Vodafone precedent would expose them to new tax liabilities.
Analysts say at least 8 other companies are facing similar litigation, as the government steps up tax collection efforts to help plug a growing fiscal deficit.
GE, SAB Miller, Cadbury, AT&T, Sanofi, and Vedanta are among the companies fighting tax cases in India that could be affected by the Vodafone precedent, said Sandeep Ladda, executive director at PricewaterhouseCoopers in India.
Vodafone lost 9 million pounds in India during the six months ending in September, but counted on the country for 9 percent of the group's 23.5 billion pound global revenues during the period.
Vodafone had moved the apex court challenging the Bombay High Court judgement of September 8, 2010 which had held that Indian IT department had jurisdiction over the deal.
Through the $11.2 billion deal in May 2007, Vodafone acquired 67 per cent stake in the Hutchison-Essar Ltd (HEL) from Hong Kong-based Hutchison Group through companies based in Netherlands and Cayman Island.
The IT Department maintained that since capital gains were made in India through the deal, Vodafone was liable to pay the tax and issued a show cause notice to it asking as to why it should not be treated as a representative assessee of the Vodafone International Holding.
Vodafone, however, challenged the the show cause notice before the Bombay High Court saying it was share transfer carried outside India. The appeal was rejected by the high court in December 2008 which was again challenged by Vodafone before the apex court. The Supreme Court also dismissed Vodafone's appeal in January 2009 and directed IT Department to decide whether it had jurisdiction to tax the transaction. The Supreme Court, however, observed Vodafone would be at liberty to challenge the IT department's decision if it went against Vodafone and the question of law would also be open.
Vodafone, challenging the tax bill over its $11 billion deal to buy Hutchison Whampoa Ltd's Indian mobile business in 2007, had appealed to the Supreme Court after losing the case in the Bombay High Court in 2010.
"The government has no jurisdiction over Vodafone's purchase of mobile assets in India as the transaction took place in Cayman Islands between HTIL & Vodafone," Chief Justice S.H. Kapadia said.
He said for the stability of economic operations, investors should know where they stand.
He said Hutch Essar, whose Indian operations were acquired by Vodafone, was not a fly-by-night operator and was in India since 1994 and had contributed Rs 20,242 crore by way of direct and indirect taxes.
Justice Kapadia delivered the majority judgment alone with Justice Swatanter Kumar. However, Justice K.S. Radhakrishnan differed with the judgment.
Lawyer Harish Salve, who represented Vodafone said, "I am very happy with the verdict; very few countries can boast of such a judiciary. The verdict will boost people's confidence on the Indian judiciary."
Vodafone shares in London rose 1.4 percent after the verdict. The decision will come as a relief to international investors who feared the Vodafone precedent would expose them to new tax liabilities.
Analysts say at least 8 other companies are facing similar litigation, as the government steps up tax collection efforts to help plug a growing fiscal deficit.
GE, SAB Miller, Cadbury, AT&T, Sanofi, and Vedanta are among the companies fighting tax cases in India that could be affected by the Vodafone precedent, said Sandeep Ladda, executive director at PricewaterhouseCoopers in India.
Vodafone lost 9 million pounds in India during the six months ending in September, but counted on the country for 9 percent of the group's 23.5 billion pound global revenues during the period.
Vodafone had moved the apex court challenging the Bombay High Court judgement of September 8, 2010 which had held that Indian IT department had jurisdiction over the deal.
Through the $11.2 billion deal in May 2007, Vodafone acquired 67 per cent stake in the Hutchison-Essar Ltd (HEL) from Hong Kong-based Hutchison Group through companies based in Netherlands and Cayman Island.
The IT Department maintained that since capital gains were made in India through the deal, Vodafone was liable to pay the tax and issued a show cause notice to it asking as to why it should not be treated as a representative assessee of the Vodafone International Holding.
Vodafone, however, challenged the the show cause notice before the Bombay High Court saying it was share transfer carried outside India. The appeal was rejected by the high court in December 2008 which was again challenged by Vodafone before the apex court. The Supreme Court also dismissed Vodafone's appeal in January 2009 and directed IT Department to decide whether it had jurisdiction to tax the transaction. The Supreme Court, however, observed Vodafone would be at liberty to challenge the IT department's decision if it went against Vodafone and the question of law would also be open.
The IT Department passed an order in May 2010 and held that it had competent jurisdiction to treat Vodafone as an 'assessee in default' for failure to deduct tax at source. This decision of IT department was challenged by Vodafone before the Bombay High Court.
The high court by its September 8, 2010 judgement, dismissed Vodafone's petition and held that "the essence of the transaction was a change in the controlling interest in HEL which constituted a source of income in India". It said the "the proceedings which have been initiated by the Income Tax Authorities cannot be held to lack jurisdiction"
The Bombay High Court judgement was challenged by Vodafone before the Supreme Court on September 14, 2010. The Supreme Court by its interim order on September 27, 2010, refused to stay the high court verdict and asked the IT department to compute the tax liability of Vodafone.
On November 15, 2010 the apex court asked Vodafone to deposit Rs 2,500 crore and a bank guarantee of Rs 8500 crore before the hearing of the case began. It also said that if the case goes in favour of Vodafone then the government will have to return the amount to Vodafone along with interest.
Supreme Court finally began hearing detailed arguments on in the case on August 3, 2011 and reserved its judgement on October 19, 2011.
(Source- http://economictimes.indiatimes.com)
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