I-T department moves Supreme Court on Vodafone income for FY08

The income tax department has moved the Supreme Court seeking directions to a tax tribunal to consider certain facts relating to the taxable income of Vodafone India Services for the 2007-08 fiscal. This relates to the sale of its calls centre business and an alleged exercise of call options in a contract with the companies of Asim Ghosh and Analjit Singh.

The development comes as both the Mumbai bench of the Income Tax Apellate Tribunal (ITAT) and the Bombay High Court have reservations in considering these facts as the SC had dealt with the issue in its landmark decision three years ago when it struck down the tax demand on Vodafone for its purchase of Hutchison’s telecom business in India in 2007.

The tax department’s petition will be heard by a bench headed by justice AR Dave on Thursday.

The tribunal had earlier granted an interim stay on the tax demand of R3,700 crore, but asked the company to remit R200 crore and provide bank guarantee for the rest. It also held that the tax department has jurisdiction in the matter but it needs to revisit its valuation.

Vodafone contends that the sale of call centre and assigning of options was not an international transaction under the transfer pricing norms and that the transfer pricing officer had no power to suo moto consider it without any reference from the assessing officer.

The department has preferred a special leave petition to bring on record the facts which have come to light after the apex court’s judgment in the Vodafone case in 2012. It seeks a direction that the ITAT should decide the issue on merits taking all facts into account, uninfluenced by the findings of the Bombay HC to the effect that the SC had decided the issue on merits.

The Bombay HC had earlier held that the SC had analysed Vodafone’s agreement with Hutchison Whampoa Properties and had held the call and put options were contractual rights which were vested in the company and had not been transferred or assigned by it. The department is of the view that the HC has erred in holding that this was not just a prima facie view.

The tax department says that HC erred in recording that the call options and put options were still with Vodafone as per the documents obtained from the Foreign Investmnet Promotion Board and the CBDT, including various applications filed by the Vodafone Group companies (Mauritius-based CGP) for exercise of put option from Asim Ghosh and Analjit Singh demonstrates that the options have in fact been exercised. Asim Ghosh and Analjit Singh had set up Telecom Investments India which owned Vodafone Essar with credit support from Huchison Teleservices and hence it had call options in its contract with these two people.

The tax authority says it is clear from the documents that the entire stake of 15% held against call and put options by Ghosh and Singh and the IDFC group of companies has been obtained by the exercise of options by the Mauritian companies of the Vodafone Group. The stake of 15% is now held by the Mauritian companies, effectively transferring the same from Indian shareholders to Mauritian shareholders. “The exercise of options in this manner was not indicated by Vodafone India Services at any stage either before the transfer pricing officer or before the HC in respect of impugned TP proceedings. Further, this was also a contentious issue in the original Vodafone dispute pertaining to capital gains on transfer of the 67% stake in HEL by the Hutch Group to the Vodafone Group,” the department has argued.

While the HC held that the transfer of options took place in India, the SC in January 2012 reversed the decision by concluding that there was no transfer of any valuable asset or property, thus no options have been exercised till date.

* Seeks directions to a tax tribunal to consider certain facts relating to the taxable income in the financial year 2007-08
* Relates to the sale of Vodafone’s call centre business and an alleged exercise of call options in a contract with the companies of Asim Ghosh and Analjit Singh
* ITAT’s Mumbai bench and the Bombay HC have reservations in considering these facts as the SC had dealt with the issue in its landmark decision 3 years ago

(With inputs from Gireesh Chandra Prasad)