Vodafone’s call to Bombay High Court gets them relief from the IT Department - Dutt Menon Dunmorrsett appear for the telecom giant

Bar&Bench News Network

Jun 08, 2010

The British mobile services giant had purchased 52 percent of Hutchison's stake in Hutchison Essar for $10.9 billion (Rs. 52,320 crores) in 2007. One of the biggest deals in mobile telephony, it set a precedent for cross-border transactions in India.

The Central Board of Direct Taxes (CBDT) claims that Vodafone owes them about $2 billion (Rs.9,485 crore) as Tax Deduction at Source and an additional $2 billion as penalty. The tax department's case is that Hutchison made capital gains in the deal, and while paying the purchase amount to Hutchison, Vodafone should have deducted tax on it.

The IT department had earlier issued a notice on the same default. Vodafone had filed a petition before the Bombay High Court challenging the jurisdiction of CBDT and also claiming that no capital gains arised from the transaction. Additional Solicitor-General Mohan Parasaran, who appeared for the CBDT, had submitted that when Vodafone signed the agreement to acquire interests in India in 2007, it automatically acquired a nexus to a source of income in India, consequently making it liable for taxation. The Court noted that the agreement between Vodafone and Hutchison was not produced before them to ascertain the nature of the agreement and consequently drew an adverse inference against Vodafone. The Court, and later the Supreme Court, dismissed Vodafone's petition questioning the jurisdiction of the CBDT and had asked them to go back to the tax office on the issue of jurisdiction.

On May 31, 2010, the Income Tax office claiming jurisdiction on the deal levied a Rs.12,000 crore ($2.6 billion) liability on Vodafone inclusive of penalties. The matter that was listed before Justice D.Y. Chandrachud and Justice Devadhar obtained an undertaking from the tax department to not proceed until further orders are passed in the writ petition filed by Vodafone.

Earlier ALMT Legal advised Vodafone before the CBDT. However, Vodafone has engaged Dutt Menon Dunmorrsett, a law firm that has offices in both Mumbai and Delhi. Partners Anuradha Dutt and Sereshte Sethna represented Vodafone. Dutt Menon Dunmorrsett came into existence in 2007 after a merger between Dutt Menon and Dunmorrsett.

Anuradha Dutt speaking to Bar & Bench confirmed that the Bombay High Court has obtained an undertaking from the tax authorities not to proceed against Vodafone and the matter now will be heard on July 8, 2010.

Comments(1)

1. "Sir,Tax, a vital part of law is yet to train its custodians to properly internalize the provisions before assessing the taxpayers' quantum of liability. Tax payers on the contrary, are required to be advised by their representative consultants not to have any unclear conflict of conception about the question of jurisdiction between the appropriate Assessing Officer and the referral or extraordinary High Court. Territorial jurisdiction as per Section 124 read with Section 120(1) or (2) of the Income Tax Act, 1961 reads, the Assessing Officer has been vested with jurisdiction over any area, within the limits of such area at which his principal place of business or profession situates and as per Section 142(1) the A.O. has power to call for the books of account of a foreign business carried on abroad provided such books are in possession or control of the assessee. The instructions of the Central Board of Direct Taxes as per Section 253(1) fixing monetary limits regarding filing of departmental appeals is binding on I.T. Authorities. As some months ago the Central Board of Direct Taxes (CBDT) had to be embarassed having issued notice to Vodafone before the Bombay HC in the event of challenging its jurisdiction by Vodafone when the CBDT asserted that this company owes them about $ 2 billion (Rs. 9,485 crore) at Tax Deduction at Source (TDS) and additional $ 2 billion as Penalty. Vodafone also contradicted the IT Department's claim of Hutchison Essar Company's making 'capital gains' alias 'chargeable gains' to Income Tax while selling 52 per cent stake to Vodafone. The Bombay HC and later the Supreme Court concurrently dismissed the petition of questioning the jurisdiction of the CBDT remitting Vodafone to the Tax Department to determine that. However the plea pressed by Mohan Parasaran, the Additional Solicitor General to the effect that at the moment when Vodafone signed the Agreement to acquire interests in India in 2007, it ipso facto acquired a nexus to a source of income in India too.The IT Department stuck to its guns and re-established its claim of jurisdiction and struck a deal to levy Rs. 12, 000/- crore ($ 26 billion) liability on Vodafone. Two other appeals by the IT Department lie before the Bombay HC against the orders of the Income Tax Appellate Tribunal allowing Shahrukh Khan to claim the deduction under section 80RR of the IncomeTax Act as a cine artist. This relevant provision of I. T. Act, 1961 referred to deduction in respect of professional income from foreign sources in cases of of author, playwright, artist or sportsman is taken resort to by Shahrukh under the plea of payment to him once by Omega watches and then after by Jeanne Arthes Perfumes 'in exercise of his profession' through modelling. Every taxpayer is entitled to benefit of deduction provided his case genuinely falls under the statute and no timely payer of tax be exacted undue amount while collecting the revenue by the IT officials. Nor notice ought to be served on the payer prior to the correct assessment of his dues Further, this issue ought not go to the extent of filing a case of 'refund' by the tax payer. Fairly viewed, why can't these two acts of excessive assessment and claiming refund by subsequent assessment year be called as double jeopardy by the Assessing Officers? Even if cost is granted the time lag between payment and repraisal delays one's enjoyment. Economically termed, by the time refund is allowed one's marginal utility is diminished blocking money in the chest of revenue. As a remedy to such procedural maladies, the I.T. Authorities' amenability be raised subjecting them to regressive action in either case of (i) income escaping assessment or (ii) income being excessively appropriated by way of amended legislation. The Taxpayers equally should be more educated by the canvassing of the Information & Public Relation Department of Govt. about their rights and benefits to tap the wrong door and be back to square one in as much as all are not in know of the operation of the tax law.Pradeepta Mishra. ". Pradeepta Mishra, HC Of Orissa, Cittack

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