In 2006, HTIL invited bids for the stake sale. In February, 2007 Vodafone Plc. emerged as the successful bidder, bidding over $11bn for the stake. Vodafone groups subsidiary company, Vodafone International Holdings (VIH), again a BVI (incorporated in Cayman Islands) signed a share purchase agreement for purchase of one share of CGP ( the effective legal transaction) from HTIL. Thus CGP which …show more content…
Such a communication was also made to the stock exchanges and shareholders.
Subsequently the IT dept. issued a notice for payment of tax and penalty.
VODAFONE’S DEFENSE
In Oct.2007, Vodafone filed a writ petition with the Bombay High Court. The primary argument by Vodafone was that this is a case of transfer of shares by a non-resident company, of a non-resident company, to a non-resident company. It doesn’t involve transfer of capital assets in India and thus is not liable to be taxed in India. Vodafone also argued that transfer pricing did not apply to a transaction of issuing equity share to its holding companies because there is no income that arises from issue of shares. Vodafone hereby challenged the jurisdiction of the tax authorities in the matter.
SECTION 9(1) of the IT Act, 1975
The following incomes shall be deemed to accrue or arise in …show more content…
The Income Tax Department presumed that Vodafone has indulged in an issue of tax avoidance and then looked at the transaction, ripped apart the transaction to look for the violation. The honorable Supreme Court of India, then recommended the courts and other concerned parties including the Income Tax Department to look at the transaction as a whole. It also advised that the transaction should not be dissected at the outset of the case to search for the unacceptable motive of tax evasion. Only, if the overall transaction hinted at artificial steps being taken, the above said principles could be ignored, and was permissible to take the transactions apart and studied to find the ulterior motive. This premise was based on the House of Lords decision in W.T. Ramsay Ltd. Versus IRC (1981) STC