Law Ministry draws up note on Vodafone verdict differences

Top officials of the law ministry have prepared a detailed note on their differences over the Supreme Court’s verdict in the Vodafone case, perhaps pushing the case for a review petition.

The prime minister’s and finance minister’s approval is needed to move it.

The note, reviewed by DNA, underscores that 25 arguments and 60 judgments cited by the revenue department could be revisited.

It stresses on the share purchase agreement (SPA) and said its “initial suppression by Vodafone” was not considered advertent or significant.

The department tells the ministry it had prepared a clause-by-clause analysis of the SPA to demonstrate the ‘true’ nature of the transaction.

Among these clauses, clause 9.2 was especially important, the department said, since it provided that in case of breach, damages were to be calculated with reference to ‘67%’ of the share capital of Hutchison Essar Ltd (HEL).

The detailed analysis sought to prove that the transaction was not merely for rights in a $1 share of CGP (Cayman Island)’ but the value of ‘66.9%’ of the paid up share capital of HEL.

The note points out the court’s observation that the department had dissected the transaction, whereas it had made several submissions to the effect that the transaction had to be viewed as a consolidated whole. The court had held that “corporate business purpose of a transaction is evidence that it is not undertaken as a colourable device.”

The taxman said it was never the department’s case that the transaction or the structure had to be a sham, but only that the revenue can look at the real purpose (if it is a taxable event) sought to be achieved by the transaction.

The note lists several arguments propounded in respect of interpretation of Section 9 of the Income Tax Act (legislative history, meaning of ‘transfer’ and ‘through,’ and case laws cited to argue that a deeming provision is to be given effect using the widest language).

The department said it was also made evident that Hutchison itself had disregarded its own corporate structure and none of its subsidiaries functioned independently.