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McClatchy-Tribune  02/06/2014 3:48 AM ET
High court sends Vodafone and I-T department to tax tribunal [Mint, New Delhi :: ]

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Feb. 06--MUMBAI -- The Bombay high court on Thursday directed the Income-Tax Appellate Tribunal (ITAT) to hear a Rs.8,500 crore transfer-pricing tax dispute relating to the Indian arm of Vodafone Group Plc from 21 February on a daily basis till a final order is passed.

The high court was hearing an appeal filed by the income-tax department challenging an interim order of ITAT, which stayed a Rs.3,700 crore tax demand raised on Vodafone India Services Pvt. Ltd.

The high court has directed both Vodafone India and the tax authority to not seek any adjournments.

This tax dispute, which is first of the three transfer-pricing cases pending in the court, relates to a Rs.8,500 crore adjustment made by the income-tax department on Vodafone India.

Transfer pricing is the practice of arm's length pricing for transactions between group companies based in different countries to ensure that a fair price -- one that would have been charged to an unrelated party -- is levied.

While the ITAT stayed the tax demand in December for six months or till the plea is decided, it directed Vodafone India to deposit Rs.200 crore by 15 February. Vodafone India has also been told to provide corporate guarantees of Rs.3,500 crore.

Following the ITAT order, the tax authority filed a rectification plea on 31 January asking the tribunal to lift the stay order.

The high court will now hear the income-tax department's original appeal after ITAT passes an order on the rectification petition filed by the tax department.

On Thursday, K. Setlavad, additional solicitor general representing the tax authority, said the "IT department has a substantial case against Vodafone India. The company should be asked to deposit at least Rs.540 crore till the case is decided."

Vodafone India has so far deposited Rs.200 crore as per the ITAT order, said Harish Salve, a lawyer representing Vodafone India.

In February 2012, Vodafone challenged the jurisdiction of the income tax department in issuing a draft transfer pricing order that sought to add Rs.8,500 crore to its taxable income.

The tax authority's draft transfer pricing order, issued in December 2011, relates to selling of Vodafone's call centre business to an offshore entity.

Earlier in 2007, Vodafone International Holdings BV, a Dutch unit of the British telecom firm, bought the Indian business operations of Hutchison Telecommunications International Ltd through the sale of a Cayman Islands-based firm called CGP Investments Ltd, a unit of Hutchison, in a $11 billion deal.

The Indian tax department estimated the company's liability at around Rs.11,000 crore for not withholding a part of the amount as tax while paying Hutchison.

In 2012, the Supreme Court ruled in favour of Vodafone and held that the deal was not taxable in India. To counter this, the government introduced a retrospective amendment to laws to bring such indirect transfers of shares under the tax net. It also introduced a validation clause that effectively made Vodafone liable to pay tax in India, sparking protests from investors.

Vodafone and the government are holding talks for an informal reconciliation of the case.


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