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Bombay HC bench to hear Vodafones plea against income-tax department
February, 09th 2008
Vodafones writ petition, challenging the show-cause notice issued by the income-tax department, will be heard by the Bombay High Court on February 10.

If the division bench decides that the writ is maintainable, it will admit the petition and hear the arguments further for deciding the case. Vodafone International Holdings BV (VIHBV) has challenged the income-tax departments show-cause notice demanding tax on the $11-billion takeover of the Indian telecom major Hutch-Essar.

The division bench comprising Justices FI Rebello and RS Mohite held that the question of maintainability of the petition is kept open for consideration at the time of final hearing. The high court has listed the status of the case as one at the stage of pre-admission. However, in the event the high court decides that the writ is not maintainable, the income-tax department is free to make a demand on Vodafone. According to the department, Vodafone should have withheld the tax that can run up to $2 billion, before it paid to Hutchison Hong Kong for buying stakes in Hutchison-Essar.

Even when the IT department issues an order against Vodafone, the latter is not obliged to make the payment immediately. Vodafone still can appeal before the commissioner (appeal), the first appellate body on tax matters, against the IT demand, and also seek a stay for payment of tax until commissioner (appeal) decides on the case. In the event of the appeal for stay on payment of tax is rejected by the assessing officer, Vodafone can appeal before the additional director of income tax and later the director of income tax, if necessary. For both the parties, it is going to be long battle. If the commissioner (appeal) decides against Vodafone, the latter can go to the Income-Tax Appellate Tribunal.

The issue between the Indian IT authorities and Vodafone has been curiously watched by the international tax community as this case can turn out to be a benchmark for deciding similar cases in other countries. This case has been prominently reported in most international tax journals, websites etc. Vodafone has filed the writ petition to challenge the Indian revenues claim that the company was in default of withholding tax obligations in India.

Vodafones point of view was this: The sale of shares of Hutch-Essar by Hong Kong-based Hutchison International to the Netherlands-based holding company of Vodafone was a transaction that took place outside India and the Indian tax authorities have no locus standi on the deal.

The Indian tax authorities viewed the issue as follows: The profit made by Hutchison Hong Kong while it sold its shares of Hutch-Essar to Vodafone was generated in India. Therefore, Vodafone, the buyer of the shares, had an obligation to pay the withholding tax in India, before making the payment to Hutchison.
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