Mumbai: The Bombay high court on Friday dismissed a writ petition filed by Vodafone India Services Pvt. Ltd, which had questioned the income-tax (I-T) department’s jurisdiction in passing a Rs.8,500 crore transfer pricing order on transactions by the company’s call centre business.
The court directed Vodafone to appeal against the tax order in an appellate tax tribunal instead. Vodafone has maintained that the disputed transactions are domestic in nature and do not fall within the jurisdiction of a transfer pricing officer.
Upholding the jurisdiction of the tax authority, a division bench of the high court said a transfer pricing officer can pick up a case suo motu (of his/her own accord) for scrutiny to decide if a transaction is international or domestic in nature.
Transfer pricing pertains to pricing of transactions between group companies based in different countries to ensure that a fair price—as would be charged to an unrelated party—is levied. The I-T department has been increasingly scrutinizing transfer pricing deals to prevent revenue leakages.
“The Bombay high court’s decision today focused solely on procedure and not on the merits of Vodafone’s case,” a Vodafone Group spokesman said in an emailed statement. “The court ruled that the matter should be looked at by the tax tribunal in the first instance, rather than passing directly to the Bombay high court.”
The Bombay high court has directed the tax department not to serve a final assessment order on Vodafone until 30 November. Vodafone has the option of either moving the tax tribunal or approaching the apex court in the interim.
This gives the company “almost 12 weeks to review its options”, the Vodafone spokesman said.
In February 2012, Vodafone challenged the jurisdiction of the I-T department in issuing the draft transfer pricing order in December 2011 that sought to add Rs.8,500 crore to its taxable income.
The Bombay high court has dismissed Vodafone’s petition because the company has the alternative “remedy” of approaching the I-T appellate tribunal, said Amit Maheshwari, a partner at Ashok Maheshwary and Associates, a chartered accountancy firm.
“There was no ruling on merits of the case relating to transactions of sale of call centre business,” he said.
The high court, in its order, also clarified it had not expressed any view on the applicability of the retrospective amendment carried out by the government, or on the tax liability of the company.
Vodafone is in talks with the government over another dispute with the I-T department relating to its 2007 acquisition of Hong Kong-based Hutchison Whampoa Ltd’s stake in its Indian telecom business for $11.2 billion.
The department has raised a tax demand of Rs.11,200 crore stemming from the acquisition, a move which was legally challenged by the company. The Supreme Court subsequently ruled that the tax authorities had no jurisdiction over the deal.
But the government revived its case against Vodafone by changing the tax rules retrospectively to bring such deals under the tax net.
The order passed on Friday is similar to an earlier order passed by a division bench in a Rs.1,100 crore transfer pricing dispute between Hindalco Industries Ltd and the tax authorities.
In 2011, the court dismissed Hindalco’s plea and directed it to seek alternative remedies (appeal at tax tribunal or dispute resolution panel) against a draft transfer pricing order by the tax department.