Vodafone International Holding B.V. (Vodafone NL) was issued an order by the Indian Tax Authority assessing a capital gains tax alleged to have arisen to the Hong Kong based Hutchison Group (Hutch) on acquisition of controlling interest in an Indian entity, Vodafone-Essar Ltd. The controlling interest was acquired by acquiring the shares of a foreign holding company that indirectly held more than 50% of the shares of the Indian entity.
The Tax Authority has alleged that Vodafone NL failed to withhold Indian tax on the payment of consideration made to Hutch for acquiring the controlling interest. Vodafone NL filed a writ petition in the Bombay High Court (HC) against the Tax Authority’s order. The HC commenced proceedings on the writ petition on 4 August 2010.
We here summarized the arguments made by Vodafone NL before the HC during the proceedings in the past two weeks. While submissions have been made on a number of technical issues arising from the case, the main thrust of the arguments has been that the transaction was not designed to evade Indian tax, transfer of shares of a company is different from transfer of underlying assets of that company, situs of the shares that was transferred is not in India and the Indian Tax Law (ITL) does not contain ‘look through’ provisions.
Facts and background
It may be recalled that Vodafone NL was issued a notice by the Tax Authority seeking to tax capital gains arising to Hutch, which had sold its stake in a Cayman Islands entity to Vodafone NL. The Cayman Islands entity indirectly owned more than 50% controlling interest in the Indian entity. Vodafone NL was sought to be assessed as an assessee-in-default (AID) for not withholding taxes on the sale consideration paid to Hutch. Vodafone challenged the issue of this notice before the HC. The HC in its order [220 CTR 649], pronounced in December 2008, had held that the notice issued by the Tax authority cannot be termed extraneous or irrelevant or erroneous on its face so as to require it to be quashed under the writ jurisdiction of the HC. Kindly refer EY tax alert dated 5 December 2008 for detailed contents and our comments on the HC order.
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