The Income Tax Department has sent out a reminder to British telecom major Vodafone to pay up taxes on the capital gains arising from its $11.2-billion offshore deal with Hutchison Whampoa in 2007.
Through this deal, Vodafone International had acquired controlling interest in the Indian telecom unit of the Hong Kong-based Hutchison Whampoa.
The reminder letter refers to tax dues of Rs 14,000 crore including interest on delayed payment, it is learnt. The letter has been issued by invoking a validation clause introduced in the Finance Budget 2012-13.
The IT department’s move to send a “reminder” letter comes more than seven months after the Indian Government amended the Income Tax law on a retrospective basis so as to bring all offshore indirect transfer of shares involving underlying assets into the tax net.
The Supreme Court had in January 2012 quashed an income tax order of October 2010 that determined a tax liability (including interest) of Rs 11,218 crore on Vodafone for the offshore deal in 2007.
The Government then chose retrospective amendment of the law to clarify that the law’s intent was always to tax such an indirect offshore transfer of shares involving underlying Indian assets.
The Centre had also introduced a validation clause to preserve the legal validity of all the then existing demand orders issued against Vodafone and similar offshore indirect transfer cases.
Reacting to this IT department move, Vodafone confirmed that it has received a reminder from the Indian tax authorities that the original tax demand remains due from the Hutchison Whampoa-Vodafone transaction of 2007.
The reminder does not include a deadline for payment. This reminder relates to capital gains tax arising from the sale of assets by Hutchison Whampoa to Vodafone in 2007.
“Vodafone has replied to this reminder, stating that it continues to believe that no tax is payable on the above transaction,” said a Vodafone statement.
The IT department’s move to send a ‘reminder’ is being seen as more of a precautionary step. The Finance Ministry has so far not given any written guidance to the field formations on how to proceed with cases involving indirect transfers or whether to keep in abeyance the action against Vodafone.
If you strictly go by the law, the income tax officer in this case should not have waited for seven months to take the next step after the amendment was made, some tax experts pointed out.
The Prime Minister’s Office is yet to take a final decision on the Shome committee report, which called for a different approach to taxation of indirect transfer of shares involving Indian assets.
With this reminder, the revenue authorities seemed to have relied on the Attorney General’s opinion which said it could go ahead and collect the tax.