Refuting reports that Vodafone was not warned about the liability before the deal with Hutchison in 2007, the finance ministry today reiterated it had informed Vodafone about its tax liability, but the company chose to ignore its advice.
"This advisory of the tax department was conveyed to the parties concerned, that is, to Vodafone Group and Hutchison.
"This has been confirmed by Hutchison Essar in writing through its letter dated April 5, 2007. . . Thus, Vodafone cannot say it received no communication from the tax department, about the chargeability of the transaction to tax in India," the finance ministry said on Wednesday.
The first notice in the transaction relating to the sale of 67 per cent stake of Hutchison Essar Ltd was issued on March 15, 2007, under section 133(6) of the Income Tax Act.
The tax department had asked HEL to give certain details of the transaction, including shareholder agreements and the memorandum of understanding between Hutchison Telecommunications International Ltd and Vodafone Group.
Vodafone International Holdings BV had acquired the entire issued share capital of CGP Investments (Holdings) Ltd,
indirectly from HTIL.
When the Indian company showed its inability to give the details, another notice was issued on March 23, 2007, which said Hutchison had made substantial gains from its investment in HEL.
"It was clearly mentioned that the capital gains were chargeable to tax in India.
"It was further mentioned that if parties to the transaction propose to advance any other view, they were free to approach the assessing officer," the ministry said.
Though HEL's principal office was in Mumbai, it was assessed to tax in Chandigarh.
The assessing officer in Chandigarh had, on March 28, 2007, written two letters to HEL, one of which was addressed to Vodafone UK.
In the replies to the letters on April 1, 2007, it was stated that the letter addressed to Vodafone UK was being returned.
"These correspondences had no relationship with the enquiry conducted at the International Taxation Directorate, Mumbai, which had the jurisdiction over the transaction.
The facts indicate while the communication sent by the Chandigarh tax office was not served on Vodafone UK, and thus has no relevance, the notice sent by Mumbai International Taxation Directorate was confirmed by HEL India to have been served on both HTIL and Vodafone," the ministry said.