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I-T Department to challenge Bombay HC verdict in Vodafone transfer pricing case
April, 20th 2016

Days after Vodafone approached the International Court of Justice seeking intervention in its Rs 20,000-crore retrospective tax case, the government has decided to appeal against the decision of the Bombay High Court in a separate case that went in favour of the company.

The government filed a special leave petition in the Supreme Court challenging the Bombay High court verdict that said surrender of option rights is not a transfer under the provisions of income tax law in a transfer pricing case.

"A substantial question of law has arisen on the issue of taxability of capital gains arising on the surrender of call option rights," the income tax department tweeted late Wednesday night. "This ruling will have adverse effect in many other domestic cases also. As such it has been decided to challenge the said ruling," the department said justifying its decision.

Vodafone didn't respond to an emailed query.

In a separate transfer pricing case involving adjustment Rs 3,200 crore, the government had decided not to appeal a Bombay High Court decision finding merit in the ruling. The tax department had reasoned that the company of undervalued its shares in subsidiary, Vodafone India Services while transferring them to the parent company in Britain.

This transfer pricing tax case had two parts — sale of Vodafone's call centre business to Hutchison Whampoa Properties and assignment of call options to Vodafone International Holdings BV in 2007-08.

Tax authorities had made a Rs 8,500 crore transfer pricing adjustment in the case that was upheld by the Income Tax Apellate Tribunal.

Vodafone had argued that there was no assignment of call options during the transition and that meant it wasn't an international transaction and therefore transfer pricing provisions did not apply. The court had ruled that there was no transfer of call option in this case.

This escalates the fight between Vodafone and tax officials. In the budget the government had offered to settle past cases arsing out of the infamous retrospective amendment of income tax law without naming Vodafone.

" I propose a one-time scheme of Dispute Resolution for them, in which, subject to their agreeing to withdraw any pending case lying in any Court or Tribunal or any proceeding for arbitration, mediation etc. under BIPA, they can settle the case by paying only the tax arrears in which case liability of the interest and penalty shall be waived," finance minister Arun Jaitley had offered.

Vodafone did not accept the offer. Last month it moved the International Court of justice seeking appointment of a third arbitrator in its Rs 20,000 crore tax dispute.

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