The final hearing of the Rs 110 billion tax dispute between Vodafone and the Department of Income Tax (IT) will begin on August 4, 2011.
In 2007, Vodafone had purchased 67 per cent stake in Hutchison of Hutchison Essar for over $11 billion. The IT Department has asked the company to pay about $2 billion, as it did not withhold capital gains tax while purchasing the stake.
The company, however, has been reiterating that the established tax laws were being re-interpreted in a new way and there were no previous examples of such taxes being imposed in India on an overseas share transfer such as this.
Vodafone also said that all the advice it received during and since the acquisition implied that there was no tax or penalty that had to be paid. The company added that it would take appropriate steps to defend itself and its investors.
After the Bombay High Court ruled in favour of the IT Department, the issue was placed before the Supreme Court in 2010. On November 15, 2010, the court had directed Vodafone to deposit Rs 25 billion, along with a bank guarantee worth Rs 85 billion.
Further on April 15, 2011, the Supreme Court requested Vodafone to appear before the IT Department. Thereafter, on March 23, 2011, the IT Department issued a notice to Vodafone, asking it to explain why a penalty equal to the tax liability should not be imposed on it and directed the company to be present before it on a specified date.
The IT Department had sought to penalise Vodafone International, the holding company of Vodafone Essar, for its failure to present Cayman Island income tax returns and certain other documents. The Department had asked for these documents between January and October 2009.
