Supreme Court asks Bombay HC to decide Vodafone tax appeal on merits

The Supreme Court on Thursday asked the Bombay High Court to decide the appeal of Vodafone India Services’, the Indian arm of Vodafone Group Plc, on merits and without being influenced by its earlier findings in a case related to R8,500-crore transfer-pricing tax dispute.

A bench headed by justice AR Dave gave directions after Vodafone’s senior counsel Harish Salve informed it that the tax tribunal had ruled in favour of the income tax department and the company has already appealed to the HC.

Solicitor general Ranjit Kumar also argued that “the tribunal has given us what we wanted today”. In view of this, it will be open to the HC to decide the matter on merits and uninfluenced by any observations made in the impugned judgment, the bench said in its order.

While the ITAT had held that the department has jurisdiction in issuing a draft transfer-pricing order that sought to add R8,500 crore to its taxable income for FY08, it did not accept the valuation arrived at by the tax athourities and asked them to arrive at a correct valuation.

The department had approached the SC to bring on record the facts which have come to light after the apex court’s judgment in the Vodafone case in 2012. The revenue wanted a direction to the ITAT to consider certain facts relating to telecom giant’s sale of call centre business and its alleged exercise of call options in a contract with the companies of Asim Ghosh and Analjit Singh.

The Bombay HC had earlier held that the SC had analysed Vodafone’s agreement with Hutchison Whampoa Properties and had struck down the tax demand on Vodafone for its purchase of Hutchison’s telecom business in India in 2007. The SC 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. “…according to us, this is an international transaction and the assignment of call option took place,” said an ITAT bench, adding the grant of call option under framework agreements 2007, against the consideration is an international transaction as per provisions of Section 92B read with Section 92F(v).

The department in its SLP had sought a direction that the ITAT should decide the issue on merits taking all facts into account, uninfluenced by the finding of the Bombay HC to the effect that the SC had decided the issue on merits.