The Income-Tax department on Tuesday told the division bench of the Bombay High Court, hearing the Vodafone tax case, that approval from the Foreign Investment Promotion Board (FIPB) was critical to the $11-billion acquisition of Indian company Hutch Essar by Vodafone. FIPB is a nodal government agency that monitors foreign direct investments into the country.

The division bench comprising Justices DY Chanrachud and SJP Deodhar has been hearing a petition filed by Vodafone, challenging the decision of the I-T department to levy capital-gains tax on the cross-border transaction. The I-T authorities are seeking to levy Rs 12,000 crore on Vodafone.

The I-T authorities, represented by senior lawyer Mohan Parasaran, told the HC that the India nexus with the mega-transaction was evident from the approvals obtained from FIPB. Therefore, it cannot be held that India has no jurisdiction to levy tax on a transaction that took place outside India between two foreign parties, the I-T had argued in court.

I-T authorities also told the court that the interest in the Indian company Hutchison Essar (HEL), comprising of various rights, is the subject matter of the sale and purchase agreement between Vodafone and Hutchison. The composite rights discussed in the agreement include management control, rights on brands, rights to conduct business in India etc.

Mr Parasaran pointed out that the transaction was not merely between Vodafone and an entity based in the Cayman Islands. In order to substantiate, Mr Parasaran described the structure of the transactions in detail and said that Vodafone would not have been able to acquire controlling stake in the Indian company merely by transferring the shares of CGPC. CGPC held only 42.3 %, Mr Parasaran pointed out.

The I-T department brought up this point to support its argument that the $11-billion acquisition of HEL by Vodafone had a nexus with India and this was not just a transaction that took place outside India between Vodafone and an entity in tax haven.