India has rejected the Dutch government’s plea for an out-of-court settlement of Vodafone International Holdings BV’s dispute involving a tax claim of over Rs 110 billion.
The Netherlands had written to the Indian government on the behalf of the company in November 2010, asking it to consider an out-of-court settlement. It is believed that the request was declined.
The case relates to a Rs 110 billion tax demand imposed by the income tax (IT) department on Vodafone International, after the company bought Hutchison’s India operations through its Dutch subsidiary in 2007 in a $11-billion deal.
The Supreme Court, which will hear the case on July 19, had earlier affirmed the IT department’s jurisdiction to tax the acquisition, as the asset transferred was in India.
In its interim order, the court had directed Vodafone to deposit Rs 25 billion with the court registry and submit a bank guarantee of Rs 85 billion. However, it had asked the IT department not to impose any penalty on Vodafone.
The IT department says that since Vodafone did not deduct tax while making the payment to Hutchison, it was liable to pay tax on it. The department has also claimed that Vodafone was informed in advance about the tax liability arising in India on account of its acquisition of Hutch Essar while the government was processing its foreign investment application.
Consequently, the department issued the order treating Vodafone as an assessee in default. Meanwhile, Vodafone maintains that it is not subject to tax in India.
