British telecom giant Vodafone has questioned the I-T jurisdiction in slapping Rs 11,000 crore as capital gains tax over its buy out of Hutchison's 67 per cent stake in Essar-Hutchison joint venture, the final hearing on which began in Supreme Court on Wednesday.
Speaking before a three-judge bench headed Chief Justice S H Kapadia, Vodafone representative and senior advocate Harish Salve contended that transaction between two foreign companies - Vodafone International Holding BV and Hutchison Communication International Ltd - had happened outside India, hence the Income tax department can not impose capital gain tax.
"Both the companies are foreigners and the transaction happened outside the country," Salve said, adding that the overseas transaction can not be taxed.
He further contended that the deal was simply a transfer of control of "downstream companies by the two foreign companies and it can not be a basis (for I-T Dept) to exercise jurisdiction".
The $11 billion-deal involved the sale of a Cayman Islands company owned by Hutchison to a Vodafone holding company in the Netherlands in 2007.
Salve while contending that there was no capital gains to Vodafone said that Hutchison controlled stake in Hutchison Essar joint venture through some downstream companies and their control was transferred to Vodafone by an overseas transaction.
In the three-hour argument, the bench asked the company some questions on the nature of transaction and observations on this matter by the Bombay High Court, whose order it is challenging before the apex court.
Vodafone will continue its argument on Thursday.
The British telecom company had purchased 67 per cent stake of Hutchison in Hutchison Essar for over $11 billion.
Following this, the I-T department raised a tax demand of about $2 billion on the company as it had failed to deduct (withhold) capital gains tax at the time of stake purchase.
This was challenged by Vodafone before the Bombay High Court, which ruled in favour of the I-T Department, following which Vodafone moved the Supreme Court last year.
The apex court had on November 15 directed Vodafone to deposit Rs 2,500 crore, along with a bank guarantee worth Rs 8,500 crore in the Rs 11,000 crore-tax demand.