After days of number crunching  and close to four rounds of hearing with Vodafone,  the Income Tax Department on October 22, 2010, raised an order demanding the final amount of Capital Gains Liability Tax that the  UK based telecom giant will have to pay for acquiring 67% stake from Hutchison in  2007.

The department has asked Vodafone to shell out Rs. 11,218 crore. Of this pay out, around Rs. 7,000 crore would be the tax component and the rest in form of interest for delayed payment. And despite Vodafone’s best efforts, the I-T dept has refused to calculate the tax demand based on apportionment whereby tax would have been calculated only on transfer of shares held in India.

This order of the department has once again raised the question on the rationale of taxing such offshore transactions, the impact it would have on future M&A deals and India’s reputation as a investment destination.

Meanwhile, Vodafone in a written statement while disagreeing with the tax calculation said, “Vodafone believes the tax calculation released by the Indian Tax Office today is unfounded as it has failed to follow the conclusions of the recent Bombay High Court judgment.”

Another issue that is likely to be raised by Vodafone in the apex court is over the notice issued to them by the tax authorities under Section 163, treating them as an agent on behalf of Hutchison against which Vodafone has also filed a petition in the Bombay HC.

The next big date in this case will be on November 15, 2010 when the case will be heard by the Supreme Court where Vodafone is challenging the Bombay High Court order and also the Final Tax Demand raised.

The 28-page order (part -1, part-2) issued by the income tax department gives the finer details of this case and how the taxman arrived at this figure.

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