The Bombay High Court dismissed a petition by Vodafone against a $1.7-billion tax show cause notice served by the income tax (IT) department for payment of capital gains tax of $2 billion.

However, the division bench of Justice S Radhakrishnan and Justice Anand Nirgude restrained the income tax department from executing its notice for eight weeks to allow Vodafone to file an appeal. Vodafone has plans to appeal to the Supreme Court soon. The company is examining the court order before planning its future course of action.

Vodafone had acquired the majority stake in Hutch-Essar from the Hong Kong-based Hutchison Whampoa, following which it was served a notice to pay capital gains tax. The company now operates under the Vodafone brand.

Mumbai-based Ruias, who manage the Essar group, have a minority stake in the venture. According to the IT department, the company was liable to pay the tax in spite of  the deals being concluded outside India, since the assets of the acquired company were mainly in India. The situation is being closely monitored by experts since the court's directive could affect other similar acquisitions, both impending and completed.

However, according to Vodafone, the transaction was carried out through a subsidiary based in the Netherlands. Since Vodafone was a Dutch company, and Hutchison was incorporated in Cayman Islands, India’s IT Act was not applicable to the company.

However, the IT department expected Vodafone to deduct the tax at source before making the payment to Hutchison. According to the department, Vodafone should be treated as an agent of the nonresident company, Hutchison, under Section 163 of the Income Tax Act. X

Check Out
Vodafone fined for unwanted caller tune
Vodafone asks DoT to delay 3G auction further
Vodafone complains over non-transfer of shares
Vodafone plans buy-back as share price falls
India places order for Hutch-Vodafone transaction details
Vodafone taken to court over tax
Economic Times