The Bombay High Court has postponed a hearing on details of another significant court case on the issue of jurisdiction of Indian tax authorities on foreign companies in business deals with Indian domestic ones. MMM Holdings and New Cingular Wireless, subsidiaries of AT&T, have challenged a showcause notice from the Income Tax Department in the HC here. There was a hearing a few days earlier, and a new date has been set.

The notice was served to these two companies in May, on the income from the sale of stake in Idea Cellular in favour of their Indian partners, Tata Industries and Aditya Birla Nuvo. AT&T, Grasim and Tata Industries had formed Idea Cellular in 2000. AT&T had invested in this joint venture through its Mauritius-based arm, AT&T Cellular Pvt Ltd.

In 2004, the two companies of AT&T formally acquired the Mauritius outfit and then exited the JV, selling the share to Birlas and Tata in 2005.

The I-T Department has also served notices to Aditya Birla Nuvo and Tata Industries, as representative assessees in the same case, for allegedly acting as agents for AT&T .

In a emailed query, an AT&T spokesperson said: “We believe this tax assessment is invalid, and we intend to challenge it.”

Official sources said there were capital gains from the sale of the shares in Idea Cellular, an asset based in India. “Investigations have shown that the capital gain is actually accruing to AT&T, which is the controlling company for its subsidiaries, MMM Holdings and New Cingular Wireless, which in turn are holding companies for Mauritius-based AT&T Cellular,” they said.

AT&T Cellular, the department said, was formed exclusively for the share transaction between the three companies and to avoid paying capital gains tax in India.

“Since gains are arising from an Indian asset, the tax should be paid in India,” explained an official.

Aditya Birla Nuvo and Tata Industries have also filed a writ against the notices. The former has also challenged a separate notice of the I-T Department, claiming Rs 300 crore as tax deducted at source on the payments made to AT&T for purchasing the Idea Cellular stake. According to department sources, Aditya Birla Nuvo had availed an exemption certificate for not paying tax on capital gains on the deal in 2005. The exemption certificate was given since there was no formal agreement for this sale and purchase. However, investigations showed later the company had a post-dated formal agreement for the deal, which makes any exemption or benefit void, said a source. A faxed query to Aditya Birla Nuvo for their views on the two notices did not elicit any response.

Tata Industries has also contested the notice on being a representative assessee for AT&T in India, and a separate one claiming Rs 200 crore as capital gains for selling its stake in Idea Cellular to Aditya Birla Nuvo. Tata had sold part of its shares to Aditya Birla in India and in Mauritius. The tax claim was on the stake sale through a Mauritius-based company, which the department claimed was round-tripping (routed only to avoid tax payment). Tata Industries has paid the Rs 200-crore demand, but is contesting it. Its spokesperson said since the entire issue was in court, they would not like to comment.

The tax department had earlier sent a similar showcause notice to Hutch Vodafone and is in the process of seeking details from the company.

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