UK and International Tax news

Bombay High Court Dismisses Vodafone Petition

Monday 13th September 2010

The Bombay High Court has recently dismissed a petition by Vodafone International Holdings BV (Vodafone), a Netherlands company, that it was not required to pay a withholding tax of 20% on the purchase price (USD11.2bn) of shares in CGP Holdings Ltd (CGP), a Cayman Islands company, from Hutchinson Telecommunications International Ltd (a Hong Kong company). CGP through various intermediate companies, controlled Hutchinson Essar Ltd, an Indian company.

Vodafone had argued that as it had bought shares in a company situated outside India, it was not required to account for tax because of s.9 ITA 1961 which only applied to transfers of capital assets situated in India.

Vodafone had challenged the jurisdiction of the tax authorities in this matter who, in summary, had argued that the transaction was one of a transfer of a capital asset situated in India, and in particular that s.195 applied when the taxpayer has some sort of nexus with India irrespective of the taxpayer/deductor being a non resident.

The Revenue Authorities have been directed to compute income chargeable to tax in Idia but not to pass final orders for eight weeks in order to allow Vodafone to challenge the decision in the Supreme Court.

The observations made by the High Court are very significant as they potentially strengthen the Revenue’s stand on the taxability of offshore transactions between non residents who have a connection with India.

Vodafone is likely to appeal to the Supreme Court and seek a stay of the Hogh Court order until the Supreme Court decides on the case.

Whilst this ruling is fact specific, the final outcome could well influence other similar cases pending in India.

If you would like more details on this case, please contact Keith Rushen on +44 (0)20 7486 2378.

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