The Indian Income Tax department on Monday told the division bench of the Bombay High Court that it has the jurisdiction to levy tax on the $11-billion acquisition of Indian telecom major Hutch-Essar by Vodafone.  The division bench has been hearing a petition filed by Vodafone against the Income tax department which is seeking to levy about $1.2-billion tax on the mega deal that happened in 2007. Vodafone has questioned the jurisdiction of the Indian Income tax department to claim tax on a transaction that took place outside India between two overseas parties.

The I-T department argued that the transaction involved not only transfer of shares but also several other rights including management control, rights on brands, rights to conduct business in India, and a 15% option.

The I-T department represented by senior lawyer Mohan Parasaran told the division bench comprising justice DY Chandrachud and justice JP Deodhar that the transfer of several rights other than the transfer of shares of Hutch-Essar certainly point towards an “Indian nexus” to the transaction and therefore India has the right to claim tax on the transaction.

Mr Parasaran further pointed out that transfer of composite rights which included 66.98% of controlling interest, management control, right to use the Hutch brand, right to do telecom business in India and the right to use software license are evidence of a territorial nexus with India. Vodafone had acquired all these rights by virtue of the sale and an agreement between the two parties and not by the transfer of one share of CGPC, the Cayman Island company, through which transaction was routed through. Transfer of one share of CGPC would not have resulted in transfer of all the composite rights (including 66.98% shareholding in Hutch-Essar) in Hutch-Essar to Vodafone.

Mr Parasaran pointed out to the court that the requirement of FIPB approval for Vodafone was not a mere formality, as was claimed by Vodafone. The sale and purchase agreement between Hutchison and Vodafone required such FIPB approval to be obtained.

“Would the Telecom Regulatory authority of India and FIPB be okay, if the sale was to a Pakistani entity instead of Vodafone?” Mr Parasaran asked the court.

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