The tax department has asked Hong Kong-based Hutchison Holdings to pay up over ₹32,000 crore as capital gains tax, penalty and interest on the deal to sell its mobile business to Vodafone in 2007.
In a filing to the Hong Kong stock exchange, Hutchison Holdings Ltd said its unit, Hutchison Telecommunications International Ltd (HTIL), has been served with a tax demand of about ₹7,900 crore, an additional ₹16,430 crore of interest and another ₹7,900 crore in penalty. The demands were raised by the Indian tax department through two notices — on February 13 and August 9.
This is the first time the tax authorities have issued notices to the Hong Kong firm. Until now they had targeted Vodafone for failing to recover the tax at the time of the deal. Vodafone had challenged the tax, saying it did not make any gains on the deal. The British telecom major also argued that since the transaction was not between Indian entities, there was no tax liable to be paid in India.
Tax authorities argued that Vodafone should have recovered the tax on Hutchison’s before concluding the deal, and that though the transaction was between two foreign entities, since the underlying assets are in India, there was a tax liability.
The dispute came before the Supreme Court in January 2012; it ruled that the company was not liable to pay any tax over the acquisition of assets in India from Hutchison. But in May 2012, the Centre amended the tax laws with retrospective effect and again claimed taxes. Vodafone then filed a complaint with the international arbitration panel. The panel is yet to give its ruling; Indian tax authorities have now issued the notices to Hutchison.
The Hong Kong-based company, in its filing to the exchange, said the taxes cannot be validly imposed on it as the Supreme Court had, in January 2012, ruled that the 2007 deal was not taxable in India. It said the tax demand violates the principles of international law.
Hutchison may contest Tax experts said the move to issue notices to Hutchison could backfire. “This weakens the tax department’s case against Vodafone in the tribunal as you cannot ask two entities to pay the same tax. In effect, the tax department has conceded its case against Vodafone. Hutchison will contest this claim, and the legal arguments have to be heard all over again,” said a Mumbai-based tax lawyer.