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Vodafone challenges courts tax ruling in SC
September, 15th 2010

Vodafone Group has filed an appeal with the Indian Supreme Court challenging a recent decision of the Bombay High Court which said that it had to pay tax on a transaction in which Hong Kong-based Hutchison had sold an equity stake in an Indian telecom company to it.

The appeal challenges the recent High Court judgement on the issue of jurisdiction. Vodafone remains convinced that there is no tax to pay on the Hutchison transaction and we will continue to defend this position vigorously, said a statement issued by the company. Just a week ago, the Bombay High Court ruled that the Indian tax authority had jurisdiction to tax Vodafones $11 billion purchase of controlling interest in Vodafone Essar, then known as Hutchison Essar.

The Income Tax Department had issued a show cause notice to Vodafone in 2007, saying that it should have withheld tax when it cleared payments to Hutchison. The UK-based global telecom giant subsequently filed a petition against this in Mumbai.

The case was heard in 2008, and in December that year, the High court dismissed Vodafones petition. The company then appealed this in the Supreme Court, that sent the matter back to High Court to establish whether the Indian tax department has jurisdiction on the transaction.

Senior lawyer, Harish Salve, who was representing Vodafone had said at the time of the most recent Bombay High Court ruling, that the company would file an appeal soon. The estimated tax liability on the transaction is $2 billion. While the High Court judgement that said there was jurisdiction because at least part of the transaction has direct linkage to India, it did not specify the amount of tax due.

Vodafone argues that the transaction took place overseas, through arms set up in tax havens. Besides, the existing tax norms do not say that such transactions are taxable, unlike the Direct Tax Code that will come into effect from April 2012. Therefore, the company says it should be exempted of tax.

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