Vodafone Wins Rs.11000 Crore Tax Dispute Case in Supreme Court

The Supreme Court on Friday Jan 20,2012 ruled in favour of British Telecom Major Vodafone  in the biggest tax dispute case in Indian corporate history.The company had challenged the Bombay High Court order asking it to pay around Rs.11,000 crore (2.4 bn dollars) to the income tax department  for an acquisitionin the country.

 
The I-T department had slapped a tax notice for non-payment of dues saying the company had acquired assets in the country as Vodafone deal involved entities based in Britain, the Netherlands, Cayman Islands, Mauritis and Hong Kong.In this case, Hong Kong-based Hutchison International sold its shares in the Indian company through a company based in an offshore destination.

Supreme Court Ruling

The SC has ruled that Indian tax authorities have no jurisdiction over Vodafone's purchase of Hutchison's interest in its mobile telephony joint venture in India with Essar, as the deal was executed through sale of a holding company registered in the Cayman Islands. 
The SC judegements says that Vodafone International Holdings B V('VIH'), a Netherlands tax resident company holding that the revenue authorities does not have any jurisdiction to tax the offshore transfer of shares between two non-residents .
The apex court held that the provisions of Section 9 of the Income Tax Act, 1961, can not by a process of interpretation be extended to cover indirect transfers of capital assets/property situated in India and accordingly do not have 'look through' provisions. 

The Case 
Vodafone International Holdings BV, a Dutch unit of the British telecom operator, acquired the Indian business operations of Hutchison Telecommunications International Ltd (HTIL) through the sale of a Cayman Islands-based firm called CGP Investments (Holdings) Ltd, a unit of HTIL, also a Cayman Islands company.
HTIL is owned by Hong Kong-based Hutchison Whampoa Ltd, controlled by billionaire Li Ka-shing.


Timeline of Vodafone Acquisition and tax demand and case thereon

In Feb 2007,Vodafone buys 67% in Hutchison Essar  for $11.5 billion. The company is renamed Vodafone Essar.
In April 2007,FIPB clears deal subject to the rider that minority shareholders can sell only to resident Indians.
In Sep 2007,The income-tax (IT) department slaps Vodafone with a tax demand of Rs 11,000 crore as the asset is in India.
In Oct 2007,Vodafone goes to Bombay High Court (HC) saying "it was a share transfer carried outside India".
In Dec 2008,HC dismisses Vodafone's petition, says IT department has right to investigate the case; Vodafone appeals to SC
.In Jan 2009,SC dismisses Vodafone's appeal; leaves the decision on jurisdiction of the deal to the IT department. Also refers the case back to Bombay HC.
In Oct 2009,IT dept issues a new showcasue notice.In Jan 2010,Vodafone replies to IT notice saying IT dept does not have jurisdiction.
In May 2010, IT department says it has jurisdiction.In June 2010,Vodafone files petition in Bombay HC challenging IT department's order it has jurisdiction.
In Sep 2010,Bombay High Court says Vodafone must pay capital gains tax on the deal. Vodafone appeals to SC.SC asks IT department to quantify tax liability.
In Nov 2010,SC asks Vodafone to deposit Rs 2500 crore and provide bank guarantees of Rs 8500 crore , pending final verdict.
In March 2011,Vodafone receives tax notice from IT depat asking it to explain why it should not be liable for penalties of upto 100% of the tax found due.
In April 2011,SC stays IT department from enforcing any liabilities till outcome of final hearing.
In Aug 2011,SC begins hearing the case.
In Jan 2012,Vodafone wins the case.

 Govt/IT Dept. File Revision Petition - Friday Feb 17,2012
The government filed a review petition before the Supreme Court on Friday in an attempt to reverse the decision in the Vodafone Group Plc tax case, which cost the exchequer a potential Rs. 11,218 crore in revenue and likely closed the door to such levies being imposed on more deals.
The review petition comes ahead of the March 16,2012 budget announcement in which the government has been expected to incorporate some provisions of the proposed Direct Taxes Code (DTC) to empower it to tax overseas share transactions where the majority of underlying assets are in India.
The I-T department contends that several submissions made on its behalf by solicitor general Rohinton F. Nariman were not considered by the court in arriving at its decision. The IT department has sought the review on the grounds the judgement suffered from errors, failed to consider its submissions, and that certain provisions in the income-tax law had not been correctly interpreted.

Setback to Centre as court rejects review plea in Vodafone case 

In a setback to the Union government, the Supreme Court on Tuesday March 20,2012 rejected its plea for a review of the court's January 20 ruling that the Income Tax Department did not have the jurisdiction to impose Rs.11,000 crore in tax on the overseas deal between Vodafone International Holdings and Hutchison Group.

A brief order, passed in the chambers of Chief Justice S.H. Kapadia, said: “We have carefully gone through the review petition filed by the Union of India on February 17. We find no merit … [in it]. The review petition is, accordingly, dismissed.”

Justices K.S. Radhakrishnan and Swatanter Kumar were the other judges on the Bench.