The tax demand notice was issued by the Income Tax (I-T) Department in response to a directive given by the Supreme Court directive to the Income Tax assessing officer to determine and quantify the tax liability of Vodafone within four weeks.

The Supreme Court had earlier refused to offer any immediate relief to Vodafone, which has challenged the Bombay High Court order allowing the government to tax the company’s 11 billion dollar deal with Hutch.

The apex court on September 27 had issued notices to the tax authorities directing them to decide within four weeks the liabilities of Vodafone.

Show-cause notice

The I-T Department had served a show-cause notice on Vodafone asking the company why tax should not be imposed on its  acquisition of Hutchison Telecommunications stake in Indian telecom joint venture Hutch Essar in 2007. Subsequently Vodafone approached the Bombay High Court challenging the show-cause notice served by the I-T Department.

The I-T Department in its show cause notice had pointed out that Vodafone’s deal was liable for tax because most of the assets were based in India and under Indian law, buyers have to withhold capital gains tax liabilities and pay them to the government. After a prolonged hearing that started in 2007, the Bombay High Court had ruled that the I-T Department has the jurisdiction to levy tax on Vodafone, even though the multi-billion dollar deal was signed outside the country.

The High Court has directed the I-T Department not to act on its tax order for eight weeks.Subsequently, Vodafone approached the apex court challenging the Bombay High Court ruling.