Vodafone sticks to its claim;says no tax payable in Hutch deal

"After today's hearing, Vodafone looks forward to the matter being heard in final on the February 24, 2010, when the central issue of jurisdiction will be thoroughly reviewed by the Supreme Court," Vodafone spokesperson said.

In a major setback to the telco, the Supreme Court today asked it to deposit Rs 2,500 crore in three weeks. Besides, the Court has also directed the company to furnish bank guarantees worth Rs 8,500 crore in eight weeks.

Vodafone said it will provide the deposit and the bank guarantee as asked by the Court.
However, Vodafone maintained that it is confident that there is no tax liability resulting from the transaction and all the tax and legal advice it has received remains consistent with this view.

Vodafone had been maintaining that no tax is payable by the company and that Indian authourities has no right to tax the deal which took place on foreign soil.

The tax tangle between Indian tax authourities and Vodafone was been closely watched by other MNCs as the outcome of landmark case can give some indications on the future M&A policies in India.

The case relates to the acquisition of Indian assets in 2007. Vodafone had bought 67 per cent stake in Hutchinson Essar from Honk Kong based Huthiscon Telecom International in 2007 for USD 11.2 billion. Post the deal, the company was renamed Vodafone Essar. India's Essar Group still holds 33 per cent stake in the firm.

In September, the income tax department had issued an order raising a tax demand of Rs 11,217.95 crore on Vodafone International treating it as an assessee in default for failure to deduct tax as required before making a payment of USD 11,076 million (about Rs 55,000 crore) to Hutchison Telecommunication International.

Vodafone has claimed that no tax is payable by the company and the Indian tax authorities have no right to seek tax as the transaction was executed outside the country.

The Supreme Court has fixed February 24, 2011 as the final date for full hearing of the Vodafone case.