India has written to UK and Dutch tax authorities seeking details of the Hutch-Vodafone transaction to acquire Hutch-Essar.

Sources close to the development said that the Indian government had sought the ‘sale and purchase’ agreement that Vodafone International Holdings had entered into with Hong Kong’s Hutchison. This comes even as the tax authorities and the company battle out their dispute on payment of capital gains tax in the Bombay High Court.

The missive sent out to seeks details of the agreement between Vodafone and Hutchison which the Income Tax department believes would have been given to tax authorities in these countries. A subsidiary of Vodafone Group, Vodafone International (a Netherlands-registered company) had picked up Hutchison’s (based in Cayman Islands) 52% stake in Hutchison-Essar to form the Vodafone-Essar in a $11.2 billion deal.

Vodafone International had bought out a Cayman Islands company called CGP investments, which was owned by Hutchison. CGP owned 52% stake in Hutchison Essar, the Indian telecom company, through several Mauritius entities.

 The I-T department counsel had on July 7 said in the High Court that Vodafone had failed to produce the agreement between Hutchison and itself, which alone could reveal the true nature of the transaction.

The department is yet to carry out an assessment of the transaction and books of accounts which takes place only after it has examined the reply to the show cause notice. It may be pointed that Vodafone had approached the court soon after the I-T department issued it a show cause notice.

Vodafone, at Tuesday’s hearing in the HC, offered to file the ‘sale purchase agreement it had signed with Hutchison’.
The department had issued a show-cause notice to Vodafone Essar asking ‘why it should not be treated as an agent of Hutchison International’.

The department is claiming capital gains under Section 9(1)(i) of the Income-Tax Act as they are of the view that the transaction involved transfer of an Indian asset for which even the Foreign Investment Promotion Board’s nod was taken.

Vodafone is contesting the claim that the Indian unit (Vodafone Essar, erstwhile Hutchison Essar) was as an ‘agent’ of the non resident (Hutchison International) under Section 163 of the Income-Tax Act, 1961.

The case is being keenly watched in India and in global arena as decision in this case would set the course for future and impact many such cross border transactions.

It may also be pointed that the government retrospectively amended tax deducted at source provision in the Income Tax Act through the Finance Act, 2008. The amendment seeks to expand definition of the term ‘assessee-in-default’ to include the seller who does not deduct tax at the source.