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02-09-2012, 11:11 PM #1
Vodafone wins tax suit, to save 11K crSC sets aside Bombay HC order asking the firm to pay tax on an overseas deal
In a major victory to Vodafone International Holdings, the Supreme Court on Friday set aside the Bombay High Court judgment asking the company to pay income tax of Rs 11,000 crore.
A three-judge bench headed by Chief Justice S H Kapadia held that the IT department has “no jurisdiction” to levy tax on overseas transaction between companies incorporated outside India.
Justice K S Radhakrishnan, who wrote a separate judgment, concurred with the findings of the Chief Justice and Justice Swatanter Kumar saying the companies (Vodafone and Hutchison) are incorporated outside and their transaction outside India has “no underlying nexus” with tax authority here.
“Vodafone has no obligation under section 163 clause 1 (c) of Income Tax Act,” Justice Radhakrishnan said.
The court asked the I-T department to return Rs 2,500 crore deposited by Vodafone, in compliance of its interim order, within two months along with 4 per cent interest from the date of withdrawal of the money by the tax department.
It also asked Supreme Court registry to return within four weeks, the bank guarantee of Rs 8,500 crore given by the telecom major.
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 I-T 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 the I-T department was challenged by Vodafone before the Bombay High Court.
The High Court, by its September 8, 2010, judgment, 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 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.
The Supreme Court had begun hearing detailed arguments on in the case on August 3, 2011 and had reserved its judgment on October 19, 2011.