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1. VODAFONE INTERNATIONAL HOLDINGS B.V. Vs. UNION OF INDIA & ANR. … RESPONDENT(S), CIVIL APPEAL NO. 733 OF 2012, (ARISING OUT OF S.L.P. (C) NO. 26529 OF 2010), DATE OF PRONOUNCEMENT : 20/01/2012, SUPREME COURT OF INDIA
The most awaited Cross Border Tax judgment in the matter of Vodafone is pronounced by the Hon’ble Supreme Court of India today setting aside the Bombay High Court Judgment.
Facts of the case.
(1) In 2007, Vodafone International Holding B.V. (Vodafone), a Dutch entity acquired Shares of CGP Investments (Holding) Ltd. (CGP), a Cayman Island entity through HTIL, another Cayman Island entity belonging to the Hutch group. Through CGP, Hutch group owned 67% stake in their Indian JV operations in Hutch-Essar Limited (HEL).
(2) By virtue of transfer of shares of CGP, underlying business interest of Hutch Group in India was transferred to Vodafone . The deal Value was approx. USD 11.1 billion. Payment was made by Vodafone to HTIL without deducting any taxes as the deal took place in Cayman Islands and it was interpreted that the transaction was not taxable in India.
Brief of Litigation.
Contention of Indian Tax Authorities - that the said transaction may be subject to Indian Tax laws as the dominant purpose of the transaction was to acquire the stake of the Indian entity. The IT Department passed an order in May 2010 and held that it had competent jurisdiction to treat Vodafone as an ''assessee in default'' for failure to withhold tax at source. This decision of IT department was challenged by Vodafone before the Bombay High Court. The Bombay H.C. by its September, 2010 judgment, dismissed Vodafone''s petition and held that "the essence of the transaction was a change in the controlling interest in HEL which constituted a source of income in India".
Judgment by Hon’ble Supreme Court of India.
The Offshore Transaction herein is a bonafide structured FDI investment into India which fell outside India’s territorial tax jurisdiction, hence not taxable. The said Offshore Transaction evidences participative investment and not a sham or tax avoidant preordained transaction.
Revenue contended that the words directly or indirectly in Section 9(1)(i) go with the income (i.e. all 4 types of income) but it is held that it is related to business connection only and not connected with the transfer of a capital asset (property) (i.e. 4th type of income). Indirect transfers of capital assets situated in India are not covered by the existing Section 9(1)(i) of the Act. Detailed analysis will follow......
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A Useful Article on “Personal Guarantees of Directors ”
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