The Bombay High Court on Wednesday made an observation on the ongoing debate over whether income-tax authorities are right in demanding capital gains tax on the recently concluded $10-billion sale of Hutch Essar to telecom major Vodafone.
A Division Bench of Justices FI Rebello and JP Deodhar adjourned the hearing on the petition to December 11 and directed that till the courts further directions, the I-T department will not pass any order against the company. The Bench, however, said the deal, as claimed by Vodafone International, is not a simple case of transfer of shares of a foreign company. The court said sale of shares was with the approval of FIPB, which is subject to compliance with Indian laws and regulations, including tax laws.
The observation that it is not a simple case of a transfer of shares of foreign company is viewed by tax professionals and tax officers as critical. The telecom majors involved in the deal always maintained that the Indian I-T authorities have no locus standi in this deal because the deal was between foreign entities.
The court made the observation during the hearing of the petition filed by Vodafone International, Netherlands, against whom the income-tax department sent a notice for failure to deduct tax while making payment to Hutchison Telecom International for acquiring 67% stake in Vodafone Essar.
I-T authorities sent notices to Hutch Essar and Hutchison International asking them to file income-tax returns and pay capital gain tax on the $10-billion deal.