Bombay High Court dismisses Petition of Vodafone challenging Tax Notice

MUMBAI. 3rd December 2008.

Dismissal of Petition filed by Vodafone in Bombay High Court has come as a bad News for Tax Consultants who advised their clients against paying tax on merger & acquisition deals.


Vodafone bought the 67 per cent stake held by Hutchison and Hutch is now Vodafone.


The income tax department, Director(International Taxation) had issued a show-cause notice to Vodafone-Essar asking it as to why it should not be treated as assessee in default for not deducting tax at source(TDS) while making payment for the 11.1 billion dollar deal and why tax should not be levied on the company.


According to Income Tax Department Vodafone should have deducted tax at source before making payment to Hutchison and deposited it in the kitty of the government.


The notice stated:


“…it has come to our knowledge that HTIL has made substantial gains from their investment in Hutchison Essar. You are requested to impress upon HTIL to discharge their tax liabilities on the gains made.


“Your attention is directed to Section 195 of the Income-Tax Act that casts an obligation on a person responsible for paying any sum — which is chargeable to tax in India — to a foreign company to deduct income tax at source at the time of payment credit. Thus, both the payer and the payee are required to discharge their obligations/liabilities as provided in the Income-Tax Act.


“Your stand that you are not in a position to submit requisite details since you are not a party to the transaction is not correct since the shares of your company are being sold and you can provide the information from the parties concerned,” it said.


Vodafone-Essar  filed a writ petition in the Bombay High Court challenging the notice issued by the income tax department claiming that it is not liable to pay tax on the deal.


Bombay High Court vide a ruling pronounced in open court on 3rd December 2008 has dismissed the Petition filed by Vodafone and as a natural corollary Income Tax Department can go ahead with the adjudication of show cause notice issued to Vodafone demanding tax from it.


But the dismissal of Petition of Vodafone by Mumbai High Court has given a big weapon in the hands of income tax authorities who are going to issue notices in all cases of merger and acquisitions as in most of the cases companies have not paid tax on capital gains acting on the advice of their High Profile Consultants who may now have to look for a cover by commenting that they should await the decision of SLP to be filed by Vodafone in Supreme Court against  Bombay High Court Ruling dated 3rd December 2008.


Knowing that they are on a weak wicket; none of the Companies who did not pay tax on merger and acquisition deals; sought the ruling of Authority for Advance Rulings before taking a decision against payment of tax. Even their Consultants were shy of advising them for moving before the Authority for Advance Ruling. India has seen over 500 merger and acquisition deals recently.


Any amount of tax planning is legal but when one acts on opinion of a tax consultant ; opinion of the best consultant can be wrong if the issue is highly debatable.



(Source: Allindiantaxes)


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