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Tax Tribunal Rules against Vodafone, says Transfer Pricing case lies within IT’s jurisdiction

British telecom giant Vodafone’s tax issues continue, with the tax appellate tribunal which decided that the case was very well within the jurisdiction of the Income Tax department in the Rs 8,500 crore transfer pricing tax dispute involving the sale of its call centre business to Hutchison in 2007.

The ITAT was hearing a 2012 plea of Vodafone India Services challenging the jurisdiction of the tax department in issuing a draft transfer pricing order that sought to add Rs 8,500 crore to Vodafone’s taxable income for the fiscal year 2007-2008.

The order came after the Bombay High Court earlier refused to intervene in the matter and had asked the Tribunal to hear the case on a day to day basis.  The matter will now go back to the Bombay High Court as Vodafone can appeal against the ITAT order.

The tribunal, however, did not accept the valuation of the tax department and had asked the  department to  revise the amount of the taxable income of Vodafone India.  The ITAT said this (sale of call centre) is an international transaction and the assignment of call option did take place. The tax authority™s draft transfer pricing order was issued in December 2011 but the British company argued that the transaction does not attract tax.

The income tax department had asked Vodafone to pay Rs 3,700 crore as tax last year after the sale of the call centre business.

This is not the only tax dispute Vodafone is facing in India.  A separate capital gains tax dispute between the Indian tax department and Vodafone had resulted in the tax department losing its plea in the Supreme Court. Subsequently, the Indian government issued a retrospective tax law under which Vodafone would have to pay. Then finance minister Pranab Mukherjee, now the country™s president, had faced severe criticism for the move, with industry experts saying a retrospective tax would cloud the foreign investment climate in the country. That issue is now under arbitration.

In a separate tax-related case, the Bombay High Court in October this year ruled in favour of Vodafone saying it need not pay additional tax of Rs 3,200 crore as demanded by income tax authorities.  The income tax department had alleged that Vodafone India under-priced shares in a rights issue to its parent company.  The amount included tax and interest for the tax demand for assessment year 2009-10.

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