Mumbai: The Bombay High Court on Tuesday adjourned to October 29 the case filed by Vodafone Essar challenging the Income-Tax Department’s right to levy capital gains tax.
Division bench of Justices F I Rebeillo and J P Devadhar ordered the I-T department to file its say on the petition filed by Vodafone Essar, for which the tax department has sought time.
The income-tax department issued a notice to Vodafone on August 6 asking to show cause as to why it should not be treated as “an agent” of Hutchison International (HTIL) under section 163 of the I-T Act, which sold 67% stakes in Hutchison Essar to it.
Earlier, the tax department’s counsel Beni Chatterjee had told the court that the petition was premature as capital gains tax has not yet been levied on the $11.2 billion deal between Hutchison International and Vodafone.
Vodafone International Holdings BV (Vodafone), the Dutch company, acquired the entire share capital of CGP Investments (Holdings) Ltd, a Cayman Islands based company from HTIL.
CGP, itself, owns 52% stakes in Hutchison India.
The tax department is claiming capital gains tax since the transaction involved the transfer of an Indian asset.
According to Vodafone Essar, Vodafone, CGP Investments as well as HTIL are foreign companies and the transaction was structured through Mauritius, so the capital gains cannot be considered to have accrued in India. Also India and Mauritius have a double taxation avoidance treaty.
Normally, in such transactions, the seller has the tax liability. Section 160 of the IT Act, however, ensures that an agent is treated as a representative assesses for tax purpose.