Foreign firms' share transfer not taxable: Vodafone

Vodafone's senior counsel, Harish Salve, today began arguments on behalf of the company on its plea against the income tax department in the Hutchison case. The arguments could continue for some weeks.

The company had moved court on a showcause notice from the I-T Department, quantifying a tax liability of Rs 12,000 crore (Rs 120 billion), which could include a penalty, on account of Vodafone not deducting tax from the payment made to Hutchison for acquiring the latter's stake in an Indian telecom venture.

Vodafone had paid $11.2 billion to acquire Hutch's 67 per cent stake in Hutchison Essar and the revenue authority demanded payment of capital gains tax.

Salve told a bench of judges D Y Chandrachud and J V Devadhar, that the transaction was done abroad, involved foreign companies and, hence, was not liable for tax.

The company questioned whether Indian tax authorities had the jurisdiction to seek to tax for the transfer of the shareholding in an overseas company between two non-resident companies. 

"No asset in India has been transferred. What has moved is the consequence of the extent of transfer of shares. Vodafone has acquired shares and has not made any money from this transaction. Hence, it is not liable for tax," Salve told the court.

Vodafone's counsel said it was common practice for companies to utilise favourable tax regimes of countries like the Bahamas, especially in deals like mergers and acquisitions.

This is not the first time this case has been heard in court. Last year, Vodafone appealed the Supreme Court, which passed an order quashing its plea, but asked the Central Board of Direct Taxes to look into the matter.

After this, CBDT had issued a showcause notice to Vodafone. The company made a detailed response, but the revenue authority sent a notice claiming tax on the deal.