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Tax breather for Vodafone

Mumbai, Dec. 27: The income tax appellate tribunal today gave a stay order for six months on a Rs 3,700-crore claim made on British telecom giant Vodafone Plc in a transfer pricing case.

The income tax department had recently made the claim in connection with the transfer of some shares by Vodafone’s Pune call centre unit to its parent.

The income tax department was of the view that the transaction did not comply with the transfer pricing rules, under which deals between related parties should be done on the basis of arms-length pricing.

Transfer pricing refers to charges for goods and services between controlled or related entities within a group.

In December 2011, the authorities had first passed an assessment order that directed Vodafone to add Rs 8,500 crore to its taxable income, leading to a higher liability on the telecom major.

This was challenged by the British telecom giant on the grounds that the disputed transactions were domestic in nature and did not fall within the jurisdiction of transfer pricing norms.

In September this year, the Bombay high court said the petition couldn’t be entertained as an alternative route was available to Vodafone — it could file an appeal with the tax appellate tribunal or go to a dispute resolution panel under the income tax law.

Following this, the authorities passed the final assessment order.

Vodafone was given 30 days to either comply with the order or file an appeal in either of the two forums.

The tax order for assessment year 2008-09 comes at a time the telecom company is facing a tax liability of over Rs 11,200 crore, along with interest, on its 2007 acquisition of Hong Kong-based Hutchison Whampoa’s stake in India’s Hutchison Essar.

However, the stay order came with some riders. The appellate tribunal said Vodafone would have to pay Rs 100 crore by January 15, 2014, and another Rs 100 crore on or before February 15, 2014.. Moreover, the telecom entity will also have to give corporate guarantees worth Rs 3,500 crore.

The matter will come up for hearing on March 19.

Earlier, the proceedings saw the counsel for Vodafone arguing that since the transaction was done between two domestic entities, it was outside the jurisdiction of transfer pricing.

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