In a victory for British telecom major Vodafone, the Bombay high court last week set aside a £310 million tax demand on it by the income tax department in a contentious transfer pricing case. The order comes as a clear sign to foreign investors, who have been slapped with multiple tax demands over the last few years, that rule of law prevails.
The case pertains to two transactions - an assignment of put and call options and sale of a call centre business in Mumbai - that related to Vodafone's entry into India in 2007. The I-T department valued these together at around £850 million and held them to be international transactions within the meaning of Indian transfer pricing regulations - between an Indian company and its foreign arm - and thus taxable in India. The I-T department had raised a tax demand of £310 million.
The HC upheld a challenge filed by Vodafone questioning the department's jurisdiction against an order passed last December by the Income Tax Appellate Tribunal. “The HC order is justice done in a long fight which the Supreme Court in 2012 had already adjudicated inclusively to hold that department had no jurisdiction,” said Feresthe Sethna, lawyer for Vodafone. Beni Chaterjee, the lawyer for the I-T department, said the order may be challenged once the detailed judgment is made available and studied.
The HC ruling by a bench of Justices C S Dharmadhikari and Anil Menon held that the SC had gone into the transfer pricing aspect on call options and had held in favour of Vodafone International.
Vodafone India Services had challenged a December 10, 2014 order of the ITAT, Mumbai that had held that call options held by Vodafone under the framework agreement executed by Vodafone with Analjit Singh, Asim Ghosh and their group of companies in July 2007 stand transferred to CGP India Investments. This transaction of call options transferred by Vodafone India to its associated enterprises, which the IT department said was a “wholly owned subsidiary of Vodafone Group,” was treated as capital gains and hence taxable. A transfer pricing officer (TPO) valued the transaction at £617 million.
When Vodafone entered Indian in 2007, it was decided that the call centre business alone will be retained by the Hutch group. Hence, it was sold by Vodafone India to Hutchison Whampoa Properties India by a Business Transfer Agreement in May 2007 for £6.4 million. The IT department held it to be an international transactions valued at £241.4 million and the tribunal accepted that stand.
