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Vodafone wins tax case in SC, deal with Hutchison 'bonafide'

The apex court calls the Vodafone-Hutchison $11.2 billion deal bonafide, saying the income tax department has no jurisdiction on transactions outside the country.

BT Online Bureau | January 20, 2012 | Updated 14:22 IST

Vodafone on Friday got relief in its income tax case after the Supreme Court ruled its deal with Hutchison as 'bonafide'.

Twitter feeds and television channels reported that the Supreme Court on Friday in a majority verdict has upheld Vodafone International Holdings BV's contention that the Income Tax department did not have jurisdiction over a $11.2 billion deal in May 2007 in which the British group acquired Hutchison Telecommunications International as part of a complex transaction to buy the latter's majority stake in its Indian telecom business. The Indian unit, called Hutchison Essar then, is today named Vodafone Essar.

The verdict has asked the tax department to return the Rs 2,500 crore that Vodafone had submitted as interim tax liability.

The verdict sets aside the uncertainty over the tax claim on Vodafone, as also companies involved in such transactions, but in future similar deals may come under the ambit of the proposed Direct Tax Code (DTC), which is being currently debated in Parliament. It taxes similar deals subject to certain conditions.

The telecom giant had moved the apex court challenging the Bombay High Court judgement of September 8, 2010 which had held that Indian I-T department had jurisdiction over the deal.

Through the $11.2 billion deal in May 2007, Vodafone acquired 67 per cent stake in the Hutchison-Essar Ltd (HEL) from Hong Kong-based Hutchison Group through companies based in Netherlands and Cayman Island.

The I-T Department maintained that since capital gains were made in India through the deal, Vodafone was liable to pay the tax and issued a showcause notice to it, asking as to why it should not be treated as a representative assessee of the Vodafone International Holding.

Vodafone, however, 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 apex court.

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