Vodafone to challenge HC verdict in SC

Vodafone on said it is seeking legal advice to challenge the Bombay High Court order that dismissed its plea against the I-T department's Rs 12,000 crore (Rs 120 billion) demand in tax and penalty on the company's acquisition of Hutchison Telecom in a deal of about Rs 50,000 crore (Rs 500 billion).

Reacting to high court order that said the I-T department has the jurisdiction to tax the transaction, the company asserted that it is seeking legal advice to challenge the judgment.

A division bench of the Bombay High Court on Wednesday ruled that that Income Tax Department had the jurisdiction to tax the transaction.

"The transaction has sufficient nexus with India and the I-T department has the jurisdiction to levy tax on the transaction," it noted.

The Vodafone statement further said that high court had directed the Indian Tax Authorities not to raise any final order for a period of eight weeks, which provides Vodafone time to review the judgment in detail and consider its next steps, "which includes the option of an appeal to the Supreme Court".

After an initial review of the order, Vodafone said that the court has upheld its contention that the transfer of shareholding of CGP (Cayman Island based company which held the Indian assets of Hutchison Telecommunications) was a "valid transaction (i.e. not a sham structure) and therefore not liable to be taxed in India.

Vodafone, through its group firm Vodafone International Holdings, in 2007 bought Hutchison Telecommunications India Ltd's (HTIL) stake in Hutchison Essar for over $11 billion (about Rs 50,000 crore).

The I-T department held that Vodafone liable for not deducting tax at source from payment made to Hutchison and claimed around Rs 12,000 crore (Rs 120 billion) in tax and penalty on the deal.

According to sources, the I-T department has imposed a tax of about Rs 8,000 crore (Rs 80 billion) and another Rs 3,500 crore (Rs 35 billion) as penalty.

The I-T affidavit said that Hutchison Telecommunications International Ltd (HTIL), through its investments in India, had made substantial gains which were chargeable to tax under the provisions of the Income Tax Act 1961.

While the I-T contended that the transaction was liable for tax payment in India, Vodafone International Holdings contended that both the seller and buyer were foreign companies and that the deal was made outside India.