The Supreme Court will on Friday pronounce its judgement on Vodafone International Holdings’ appeal challenging the income tax demand of Rs 11,000 crore on the overseas deal between Vodafone and Hutchison. Vodafone had moved the apex court challenging the Bombay High Court judgement of September 8, 2010 which had held that Indian IT department had jurisdiction over the deal.
Through the $11.2 billion deal in May 2007, Vodafone acquired 67 per cent stake in the Hutchison-Essar Ltd (HEL) from Hong Kong-based Hutchison Group through companies based in Netherlands and Cayman Island.
The IT Department maintained that since capital gains were made in India through the deal, Vodafone was liable to pay the tax and issued a show cause notice to it asking as to why it should not be treated as a representative assessee of the Vodafone International Holding.
Vodafone, however, challenged the the show cause notice before the Bombay High Court saying it was share transfer carried outside India.
The appeal was rejected by the high court in December 2008 which was again challenged by Vodafone before the apex court.
The Supreme Court also dismissed Vodafone’s appeal in January 2009 and directed IT Department to decide whether it had jurisdiction to tax the transaction.
The Supreme Court, however, observed Vodafone would be at liberty to challenge the IT department’s decision if it went against Vodafone and the question of law would also be open.
The IT Department passed an order in May 2010 and held that it had competent jurisdiction to treat Vodafone as an ‘assessee in default’ for failure to deduct tax at source.
This decision of IT department was challenged by Vodafone before the Bombay High Court.
The high court by its September 8, 2010 judgement, dismissed Vodafone’s petition and held that “the essence of the transaction was a change in the controlling interest in HEL which constituted a source of income in India”.
It said the “the proceedings which have been initiated by the Income Tax Authorities cannot be held to lack jurisdiction”.
The Bombay High Court judgement was challenged by Vodafone before the Supreme Court on September 14, 2010.
The Supreme Court by its interim order on September 27, 2010, refused to stay the high court verdict and asked the IT department to compute the tax liability of Vodafone.
On November 15, 2010 the apex court asked Vodafone to deposit Rs 2,500 crore and a bank guarantee of Rs 8500 crore before the hearing of the case began.
It also said that if the case goes in favour of Vodafone then the government will have to return the amount to Vodafone along with interest.
Supreme Court finally began hearing detailed arguments on in the case on August 3, 2011 and reserved its judgement on October 19, 2011.
With Additional Inputs from PTI