Tax trouble for telcos in 2G scam

Tax trouble for telcos in 2G scam

New Delhi: Companies facing the heat for their involvement in the so-called 2G scam where some of them were preferentially issued licences and spectrum, could now find themselves in more trouble with the income-tax (I-T) department telling the Supreme Court on Monday that infusion of equity from foreign firms into them was similar to the Vodafone-Hutchison case, where the department is claiming jurisdiction on an overseas transaction.

The department’s declaration came when it submitted a four-part report on the 2G case to the court. Additional solicitor general Vivek Tankha explained the department’s progress to the bench, saying that notices were sent to the companies under section 142 of the Income-tax Act, which initiates assessment proceedings.

The Vodafone case relates to Vodafone Group Plc’s acquisition of a majority stake in Hong-Kong-based Hutchison Telecom International Ltd’s Indian operations, Hutchison Essar Ltd in 2007. Last year, Indian tax authorities sent the UK firm’s acquisition vehicle, Vodafone International Holdings BV, a tax demand of 11,218 crore, which the company opposed on the grounds that the deal doesn’t come under Indian tax jurisdiction. This case will be decided by the Supreme Court starting mid-July.

Monday’s I-T report to the court could lead to fresh tax claims connected to the 2G case, which relates to the 2008 allotment of 122 telecom licences to 11 companies.

The UAE-based Emirates Telecommunications Corp., or Etisalat, acquired a 45% stake in Swan Telecom (now Etisalat DB Telecom India Pvt. Ltd) for 4,428 crore and Norway-based Telenor ASA bought a 67% stake in Unitech Wireless Ltd for over 6,120 crore. Bahrain Telecommunications Co., or Batelco, also bought stake in STel Pvt. Ltd, shortly after the controversial 2008 licence allotment by former minister A. Raja.

“The director general of international transactions has already issued notices to them. Some of them have already admitted that they should be taxed in India and we have issued them notices. They have permanent offices in India and they are assessees now. We are treating them as assessees," said Tankha.

The bench, comprising justices G.S. Singhvi and A.K. Ganguly was displeased to learn that the department had initiated its investigation into the 2G case only after it was pressed for a report. “We find that you have initiated the real investigation in March 2011," the?bench?caustically observed.

“It’s only when your lordships asked them (I-T department) for a status report that they started investigating the case. Until then they were sleeping," said Prashant Bhushan, counsel for the Centre for Public Interest Litigation (CPIL), a legal activist group that filed the public interest case that sparked off investigations into the allotment of spectrum.

“We are sure they (I-T department) would have slept over it otherwise," the court responded.

The court also objected to Tankha referring to the telcos as “big companies" and as far as to suggest that there was a possible tax evasion angle to the 2G controversy. “Prima facie they are tax evaders. Don’t call them big. Don’t insult the word," said justice Singhvi.

“Mr Raval", said the bench to the Enforcement Directorate’s (ED) counsel, “your officers must have now looked at these interesting figures."

The Central Bureau of Investigation (CBI) and ED sped up the nearly two-year-old 2G probe, after the court started monitoring the agencies in response to a petition from CPIL.

When ED’s counsel said the directorate’s officers were not fully aware of the tax proceedings, the court directed the I-T department to share all its progress with CBI and ED, and vice versa.

“We have taken note of it (I-T department’s progress). They have started. Very well," said the court, adjourning the case to 6 July.