Vodafone plea in $2.6-bn Indian tax case dismissed

Monday, September 27, 2010

NEW DELHI - India’s Supreme Court Monday denied relief to Britain-based telecom major Vodafone on its petition contesting a lower court verdict on a $2.6-billion capital gains tax claimed by the administration.

The apex court declined to stay the Bombay High Court order that directed Vodafone to pay the tax liability towards its $11-billion acquisition of Hutchison Whampoa’s 67 percent stake in the telecom venture in India.

The verdict was delivered by a bench headed by Chief Justice S.H. Kapadia.

The court asked the income tax department to decide the liability within four weeks, not to impose levy any penalty and granted Vodafone the liberty to approach if it feels aggrieved by the assessment.

The next hearing is scheduled Oct 25.

The order also sets a precedent for global firms that have bought Indian companies. Similar demands have been made from breweries giant SABMiller, GE, and AT&T for their acquisitions in India over the past few years.

The tax authorities contended that the Vodafone deal was liable to be taxed for capital gains, since the assets of the acquired company were based primarily in India.

The administration said it was incumbent on the buyer to withhold such levy and pay it to the exchequer.

The Bombay High Court had said the income tax authority’s order cannot be seen lacking the jurisdiction, after concluding hearing the arguments last month.

The judgment has came at a time when Vodafone-Essar — the Indian venture — has had to fork out nearly $2.5 towards airwaves for third generation telecom services in India, auctions for which concluded a few months ago.

Central Board of Direct Taxes chairman S.S.N. Moorthy had said last week that Vodafone-like deals were being probed and a good number of them were being finalised to ensure the government does not lose its legitimate revenues.

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