New Delhi: Tax officials are scrutinizing other cross-border mergers like the Vodafone-Hutchison deal for possible tax evasion after the Bombay high court rejected a petition against imposition of tax on the deal, a key finance ministry official said on Monday.
“We are in the process of investigating other cases. They are also in various stages of processing,” Central Board of Direct Taxes (CBDT) chairman S. S. N. Moorthy told reporters on the sidelines of an Assocham seminar here.
Moorthy said the tax department will abide by the order and not proceed with any tax notice on Vodafone before the expiry of eight weeks.
Earlier, tax authorities had slapped a showcause notice on Vodafone, asking the company why tax should not be imposed on its acquisition of Hong Kong’s Hutchison Telecommunications stake in Indian telecom JV Hutch Essar for over $11 billion in 2007. Sources said that tax on the transaction could amount to as much as Rs2,000 crore, including interest.
The tax authorities said that in this case, the buyer, Vodafone, was liable to pay capital gains tax even if it failed to deduct it at source while making payment to Hutch for the deal that happened overseas. Vodafone challenged the notice.
However, the high court ruled on Thursday that the income tax department has the jurisdiction to levy tax on Vodafone, even though the multi-billion dollar deal was signed outside the country.
The court has, however, asked the tax department not to act on its tax order for eight weeks.
“We will abide by the high court order. So, we will not take any action till the time given by the high court,” Moorthy said.
He said after the expiry of eight weeks, the next step will be taken, which is “of course, the issue of notice.”
Moorthy refused to specify which deals are being investigated by the tax authorities.
Sources, however, said the court order may have a bearing on deals like the SABMiller-Foster and Sanofi Aventis-Shantha Biotech transactions.
The second largest brewer in the world, SABMiller, had acquired a 100% stake in the Indian arm of Australia-based Foster.
Similarly, French drug maker Sanofi Aventis had picked up a majority stake in Indian vaccine company Shantha Biotech in 2009 for around $770 million.
Recently, the London-listed Vedanta group signed a deal to acquire up to a 51% stake in UK-based Cairn Energy’s Indian arm for as much as $8.43 billion.