Taxman slaps Rs11,218 cr demand on Vodafone

The income-tax department on Friday slapped a tax demand of Rs11,218 crore on UK- based telecom service provider Vodafone for its Rs50,000 crore ($11 billion) mega deal with Hong Kong-based Hutchison in 2007.

This follows a Supreme Court notice on September 27, directing the IT Department to determine the tax liability of Vodafone within four weeks.

The Vodafone case may be a reference point for the Indian tax authorities now, analysts said.

Similar cases relating to other companies are also under the tax authorities’ scrutiny, Central Board of Direct Taxes (CBDT) chairman S S N Moorthy had said recently.

The tax outgo for the company would be almost equivalent to what Vodafone Essar (the telecom joint venture for the UK firm in India) paid for 3G (third generation) spectrum across nine circles in India.

In addition to its Rs11,617 crore expenditure on 3G spectrum, Vodafone is planning to spend over Rs2,000 crore in the next 2 years on the rollout of the third-generation service.

Vodafone International Holdings BV has been treated as an assessee in default under section 201(1) of the Income Tax Act, 1961 “for failure to deduct tax as required under Section 195 of the Act before making a payment of $11,076 million to Hutchison Telecommunications International Ltd”, an official in the IT department said. The department has asked Vodafone to pay the amount within 30 days.

The finance ministry has clarified that the tax demand has been raised in accordance with the Supreme Court direction dated September 2010 to the income tax assessing officer to determine and quantify the tax liability of Vodafone within four weeks.
Meanwhile, the Vodafone Group spokesperson maintained that the company “strongly disagreed” with the tax calculation released by the Indian tax office.

“Vodafone continues to believe that it is not liable for any tax on this transaction involving the transfer of a company outside of India. Further, Vodafone was the acquirer and not the vendor and has made no gain on the transaction,” the spokesperson added.

Taxman slaps Rs11,218 cr demand on Vodafone
Arguing that this was a “test case”, the Vodafone officialsaid that the tax authority was “attempting to interpret Indian law as it has never been interpreted for the past 50 years, and this interpretation also goes against internationally recognised tax norms.”

The Supreme Court is slated to take up the Vodafone tax case again on October 25. “This calculation, as well as any appropriate stay of payment, will be reviewed when the matter comes before the Supreme Court,” Vodafone official said, while pointing out that the present calculation was unfounded.

Vodafone had moved the Supreme Court, challenging the Bombay high court judgement allowing the government to tax its mega deal with Hutchison.

Refusing to stay the high court’s judgment, a Supreme Court bench headed by Chief Justice SH Kapadia on September 27 had issued notices to the tax authorities, directing them to determine within four weeks the tax liability of Vodafone.