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New Delhi, March 20: The Supreme Court today dismissed the government’s plea seeking a review of the verdict, which held that the income tax department did not have the jurisdiction to levy Rs 11,000 crore as tax on the overseas deal between Vodafone International Holdings and Hutchison Group.
A three-judge bench, headed by Chief Justice S.H. Kapadia, dismissed the Centre’s review petition in the Vodafone tax case after a short closed-door hearing.
In the petition, the Centre said there was a need to reconsider the January 20 verdict as the law on deciding the case involving the telecom major had not been correctly interpreted. It had raised several points to contend that the verdict was erroneous.
“We have carefully gone through the review petition filed by the Union of India on February 17, 2012. We find no merit in the review petition. The review petition is, accordingly, dismissed,” the three-judge bench said.
The bench, which included Justice K.S. Radhakrishnan and Swantanter Kumar, had heard Vodafone’s original plea against the tax claim.
After the review petition was filed on February 17, the government in its budget tabled on March 16 proposed to amend the income tax act to levy capital gains tax on domestic asset acquisition through merger and acquisition deals involving foreign companies.
The apex court had on January 20 made a pitch for strong governance and stability in fiscal laws to attract investors while rejecting the tax authorities’ plea to impose stiff capital gains tax on the transaction in which a Netherlands-based holding company of Vodafone bought over a Cayman Islands-based shareholder in Hutch-Essar.
The apex court had also held that Vodafone’s transaction with Hong Kong-based Hutchison Group was “bonafide” FDI which fell outside the tax jurisdiction of the Indian authorities.
“The offshore transaction evidences participative investment… not a sham or tax avoidant preordained transaction. It is between a Cayman Islands company and a company incorporated in the Netherlands. The subject matter was the transfer of a company incorporated in Cayman Islands. Consequently, Indian tax authorities had no territorial jurisdiction to tax the offshore transaction,” the bench said.
While ruling in their favour, the top court had commended both Vodafone and Hutch saying they were not “fly-by-night” operators or short-term investors and had contributed substantially — Rs 20,242 crore — to the exchequer between 2002-03 and 2010-11, both by way of direct and indirect taxes.
Vodafone was asked by the income tax department in October 2010 to cough up around Rs 11,217 crore by way of capital gains tax.
The firm stood to lose an equivalent amount as penalty for avoiding the tax, prompting it to appeal to the Bombay high court. The high court, however, ruled against Vodafone on September 8, 2010.
The firm then approached the Supreme Court. The apex court in November last year asked the company to deposit the initially assessed amount of Rs 2,500 crore with the registrar of the Supreme Court deposit and another Rs 8,500-crore as a bank guarantee.
In a voluminuous petition, the government had pointed out several errors apparent in the judgment to press for a review.
Among other things, the I-T Department claimed that the court erred in holding that the transfer of management rights could not be construed as an extinguishment of property rights for the purposes of determining tax liability.
The government also questioned the wisdom of the court in dubbing it a case of FDI.
“… the instant case does not involve any inflow of monies into India because the sale consideration was admittedly paid outside by VIH, a British Virgin Island company to Hutch Telecommunications International (Cayman) Holdings Ltd, and was therefore not a case of FDI investment into India at all,” it said.
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