A win win situation for Vodafone International Holding

The Supreme Court on Friday, gave a remarkable decision, by directing  the government to return Rs 2500 crore to Vodafone International  Holding with interest over a $ 2.2 billion tax bill for its purchase of Hutchison Whampoa™s Indian mobile business  in 2007.

 This decision is indeed a welcoming note for all the Foreign Investors to make more and more investments in our country together with an increase confidence on the Indian judiciary.

 Vodafone had started off its operation in year 2007 by acquiring 67% stake in the Hutchison- Essar Ltd from Hong Kong based Hutchison Group through companies based in Netherlands and Cayman Island.

 The case took off with, The Income Tax Department raising query that since the capital gains were made in India through the deal, the company was liable to pay the tax and issued a show cause notice to it asking as to why it should not be treated as representative assessee of the Vodafone International Holding.

Vodafone, challenged the show cause notice before the Bombay High Court saying it was share transfer carried outside India. The appeal was rejected by the high court in December 2008 which was again challenged by Vodafone before the Supreme court.

The Supreme Court also dismissed the appeal in January 2009 and directed Income Tax Department to decide whether it had jurisdiction to tax the transaction. The Supreme Court, still, observed Vodafone would be at liberty to challenge the Income Tax department’s decision if it went against Vodafone and the question of law would also be open.

The Income Tax Department replied to this order in May 2010 saying, that the department has competent jurisdiction over the Vodafone, to be treated as an ˜assessee in default’ for failure to deduct tax at source. This decision of IT department was challenged by Vodafone before the Bombay High Court.

The High court passed its judgment on September 8, 2010, dismissing Vodafone’s petition and held that “the essence of the transaction was a change in the controlling interest in HEL which constituted a source of income in India”. It said the “the proceedings which have been initiated by the Income Tax Authorities cannot be held to lack jurisdiction”.

 Vodafone again moved to the Supreme Court challenging the High Court decision which had held ˜that the Indian Income Tax department had jurisdiction over the deal.™

 On January 20, 2012, Supreme Court  dismissed the judgment of Bombay High Court asking Vodafone International Holding to pay income tax of Rs 11000 crore on a deal abroad and directed the Income Tax department to return Rs 2500 crore to the company which was deposited by the company earlier within 2 months along with 4% interest.

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