Bombay High Court on Wednesday began hearing on Vodafone’s plea challenging income-tax department’s tax claim of $2 billion on the telecos’ buyout of Hutchison’s stake in Hutchison-Essar in 2007 for $11 billion.
Vodafone was the first to present its case to a division bench comprising Justice DY Chandrachud and Justice JP Devadhar. The court has to decide whether the I-T Department has the jurisdiction over the transaction between Vodafone and Hutchison.
Lawyers Harish Salve and Abhishek Singhvi argued on behalf of Vodafone, while the government is represented by Additional Solicitor General Mohan Parasaran.
Vodafone will continue to present its case on Thursday. During the course of his argument on Wednesday, Mr Salve said that subsidiaries in Cayman Island and Mauritius that Vodafone bought were set up over 14 years and were functional companies in their individual rights.
The stake changed hands through a subsidiary in Cayman Islands that held shares in Hutchison Essar, now called Vodafone Essar, through arms in Mauritius and India. Apart from the transaction being offshore, India has a double-taxation tax treaty with Mauritius.
Under the treaty, investments made in India from Mauritius are not subject to tax. The current tax regime also sheds no light on indirect tax, unlike the direct tax code that clarifies a stance.
However, the I-T department had said it was the Indian company that had created value for Hutchison, therefore it deserved to be taxed in India. I-T department said that the routing of the stake exchange through subsidiaries in Mauritius and Cayman Islands was to evade tax. The onus is on Vodafone to pay up, it said.