The Bombay High Court has rejected a writ petition filed by Aditya Birla Nuvo Limited (ABNL), challenging a notice sent by the income tax (IT) department, requesting for information on the purchase of AT&T’s stake in Idea Cellular.
A division bench of Justice J.P. Deodhar and Justice A.A. Sayed has asked ABNL to provide the IT department with details of the transaction. This is to enable them to scrutinise the transaction and frame a tax demand. The bench also rejected an appeal filed by Tata Industries, which faces a similar demand from the tax department on its acquisition of shares in AT&T Mauritius.
The litigation in the Bombay High Court arose out of a deal between AT&T and ABNL, in which the latter paid $150 million to buy AT&T’s 16 per cent stake in Idea Cellular.
The stake was held by a holding company, AT&T Mauritius and ABNL had paid AT&T after obtaining confirmation from the IT department that tax was not required to be withheld under section 195 of the Act. The confirmation was in the form of a no-objection certificate (NOC).
However, in 2009, the IT department issued a notice to ABNL, enquiring why it should not be considered an agent, for tax purposes, of US-based New Cingular Wireless, the US-based parent of the Mauritius company. In court, the IT department argued that the NOC granted to ABNL for remitting the sale amount to the Mauritius company without deducting tax was tentative.
The tax authorities countered this by stating that a provisional NOC did not bar it from scrutinising the transaction. The authorities also contended that New Cingular Wireless Cellular US, the parent company of AT&T Mauritius, received the sale proceeds and not A&T Mauritius.
ABNL had filed a petition in the High Court in 2010, against a notice from the IT Department and the High Court had granted interim relief to the company in 2010. In court, ABNL argued that the company selling the shares, AT&T Mauritius, was a tax resident of the island nation.
Accordingly, capital gains arising from the transfer of shares of Idea Cellular should not be taxable in India under the India-Mauritius tax treaty. Since capital gains are not taxable in India, ABNL, as a payer, would not be liable to tax.
