The Bombay High Court on Wednesday dismissed Vodafone International’s plea challenging the I-T Department Rs. 12,000 crore demand in tax and penalty on USD 11 billion takeover of Hutchison Telecom. This judgement could impact foreign companies buying assets involving India firms.

The court, however, gave liberty to Vodafone to argue before the tax department that no penalty should be imposed as they genuinely believed they had no liability to deduct tax at source.

Incidentally, the verdict came on a day when British firm Cairn Energy Plc said it would pay all taxes due, both in India and the United Kingdom, on the USD 8.48 billion (about Rs. 39,000 crore) sale of a majority stake in its Indian arm to London-listed Vedanta Resources.

Vodafone, through its group firm Vodafone International Holdings, in 2007 bought Hutchison Telecommunications India Ltd’s (HTIL) stake in Hutchison Essar in 2007 for over USD 11 billion.

Indian conglomerate Essar holds about 33 percent stake in Vodafone India.

The I-T department held that Vodafone liable for not deducting tax at source from payment made to Hutchison and claimed around Rs. 12,000 crore in tax and penalty on the deal.

A division bench comprising Justice Dhananjay Chandrachud and Justice J P Deodhar held that Income Tax Department had the jurisdiction to tax the transaction.”The transaction has sufficient nexus with India and the I-T department has the jurisdiction to levy tax on the transaction,” the bench noted while delivering the verdict.

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