The Income-Tax (I-T) department in its reply to Vodafone International Holdings BV’s petition, filed in the Bombay High Court, contended that the latter acquired a business interest in India and hence is liable to pay tax on the transaction.

Vodafone had filed a petition in the Bombay High Court last month saying that the I-T department had no jurisdiction to levy tax on its $11-billion acquisition of Hutchison International’s stake in Hutchison Essar in 2007.

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“Vodafone was conscious that it was acquiring a capital asset in India,” said Additional Solicitor General of India Mohan Parasaran. ”It was not merely a transfer of shares,” he said. Mr Parasaran represents the I-T department in the Bombay High Court.

I-T department claimed Rs 12,000 crore tax from Vodafone International on the ground that Hong Kong-based Hutchison International made capital gains by selling its two-third stake in its Indian arm. Vodafone should have deducted tax when it executed the deal, the department reasoned.

The transaction was structured to appear as though it was a transfer of a Cayman Island company, a subsidiary of Hutchison, for which payment was made outside India. Vodafone’s petition contended that the I-T department does not have jurisdiction to levy tax in an international deal between two foreign companies. The division bench of Justice Dhananjay Chandrachud and Justice JP Devadhar will hear the case on July 8.

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