The Supreme Court is likely to start the final hearing on the high profile Rs 11,000 crore tax dispute between telecom major Vodafone and the I-T Department tomorrow– a development that corporate India has been keenly watching. A three-judge bench headed by Chief Justice S H Kapadia is expected to start hearing the case immediately after concluding its hearing on a petition over right to education.

Vodafone in 2007 had purchased 67% stake of Hutchison in Hutchison—Essar for over USD 11 billion. The I-T department had raised a demand of about USD 2 billion on the UK-based telecom company as it had failed to deduct (withhold) capital gains tax at the time of stake purchase.

The company, however, has held that the established tax laws were “being reinterpreted in a completely new way” and there were no previous examples of such taxes being imposed in India on an overseas share transfer such as this.

Vodafone said all the advice received by the company during and since the acquisition was that “there is no tax or therefore penalty that arises and Vodafone will take all appropriate steps to defend itself and its investors against this latest unwarranted action from the tax authority.”

After the Bombay High Court ruled in favour of the I-T Department, the matter came up before the Supreme Court last year.

The apex court on November 15 directed Vodafone to submit Rs 2,500 crore, along with a bank guarantee worth Rs 8,500 crore in the Rs 11,000 crore-tax demand.

Further on April 15, the Supreme Court directed the telecom giant to appear before the I-T Department, which had issued it a notice seeking penalty in the USD 2 billion tax case.

The department had on March 23 issued a notice to Vodafone, asking it why a penalty equal to the tax liability should not be imposed on it under section 271C of the Income Tax Act, and directed the company to be present before it on a specified date.

The I-T Department had sought to penalise Vodafone International, the holding company of Vodafone Essar, for its failure to present Cayman Island income tax returns and certain other documents.

The department had asked for these documents between January and October 2009.

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