Vodafone’s tryst with Indian courts may not end soon. The Bombay High Court has adjourned hearing on two significant Vodafone-related tax cases to July 27.
The two cases before the Division Bench, comprising Justice Mr Vaziferdar and Justice Mr M.S.Sanklecha, related to litigation on agency principles.
The challenge before the Bench is whether Vodafone Essar can be considered an agent (representative assessee) of Vodafone International (buyer). The other case relates to whether Vodafone International can be considered an agent (representative assessee) of Hutchison Whampoa (seller).
These cases came up in the Bombay High Court much before the Supreme Court came out with its landmark judgment on the Vodafone tax case in January. The main issue before the Supreme Court was about the withholding tax notice — both its tenability and substance — issued by the tax department.
Although the agency matter was not before the Supreme Court, the apex court had given some positive findings in favour of Vodafone on this aspect.
Considering that the Supreme Court’s judgment has been invalidated by the retrospective changes to the income tax law in the latest Budget, one needs to wait and watch for the final outcome of the agency-related proceedings now adjourned for July 27.
This could be one reason why the Income Tax Department has not approached Vodafone (with a notice or reminder letter) even after the enactment of the Finance Bill 2012 on May 28, say tax experts.
The Finance Secretary, Mr R.S.Gujral, had on June 11 said the Finance Ministry was yet to make any move on the Vodafone tax matter, although the Finance Bill was enacted into law on May 28.
So, how crucial are these two cases before the Bombay High Court? If the Bombay High Court were to decide that Vodafone-Essar (now renamed as Vodafone India) was an agent of Vodafone International, then the I-T Department can justifiably approach Vodafone India for any withholding tax liability that may arise upon Vodafone International.
With the retrospective changes made into law in this year’s Budget, Vodafone International may find it difficult to get away from its withholding tax liability in the $11.2-billion deal it entered into with Hutchison Whampoa in 2007, say tax experts.
Also, if the Bombay High Court decides that the buyer is an agent of the seller, then the I-T Department could justifiably collect taxes from the buyer, if the gains made by Hutchision Whampao were to be characterised as capital gains, which is taxable in India.