The Essar group is planning to seek a refund of the $883 million from the Income Tax (I-T) department. The amount was deducted by Vodafone Group as withholding tax during its acquisition of Essar?s stake in July 2011.
The move follows the Supreme Court verdict clearing Vodafone of any tax liabilities for acquiring a majority stake in Hutch Essar from Hong Kong based Hutchison Whampoa. The apex court stated the 2007 deal was structured as a transaction between two foreign entities and the company was not liable to pay any capital gains tax.
During the 2007 acquisition, Essar had 33 per cent shareolding in Hutch Essar. However, in July 2011, Vodafone acquired Essar?s 33 per cent stake. As a part of the deal, the two wholly owned subsidiaries of Essar Communications (Mauritius) Limited, Essar Communications and Essar Com, sold their 22 per cent stake in Vodafone Essar to the Vodafone Group.
According to the pact signed by the two companies, Vodafone made a net payment of $3.32 billion, after deducting $883 million as withholding tax. This amount was later submitted to the Indian tax authorities. While, both Vodafone and Essar believed there was no tax due on their deal, they felt it was prudent to pay withholding tax to the authorities, which later can be claimed as a refund.
Recently, the Supreme Court has passed a judgment in favor of Vodafone upholding company?s claim that no tax was payable for its 2007 transaction with Hutchinson Essar. The court has asked the I-T department to return Rs 25 billion deposited by Vodafone, within two months along with 4 per cent interest.
