hutch to vodafone detailed case study pdf
TRANSCRIPT
ANUP S
Submitted by
Vodafone
Detailed
Case Study
Hutchis now
Vodafone
AMALGAMATION:
When two companies merge together to continue the same business such business
combination is referred to AMALGAMATION.
ABSORPTION:
When one existing company purchase or take over the business of another company as
going concern then such an arrangement is termed as ABSORPTION.
EXTERNAL RECONSTRUCTION:
When one company liquidates itself to form another company to take over business of
liquidating company, then such an arrangement is referred to as
EXTERNAL RECONSTRUCTION
Today all the above concepts are popularly known as MERGERS and ACQUISTIONS.
Hutchison Essar Ltd. (HEL)◦ Indian company
◦ Providing Telecom Services
Hutchison Telecom International Ltd.
◦ Foreign Company (Situated at Hong Kong)
◦ Holding 100% shares in CGP Investments Holdings Ltd.
CGP Investments Holdings Ltd. (CGP)◦ Foreign Company (Situated at Cayman Island,
Mauritius) Holding 67 % share in HEL
Hutchison Telecom International Ltd (Hong Kong)
Holding 100% shares in CGP
CGP Investments Holdings Ltd. (Mauritius)
Holding 67% share in HEL
Hutchison Essar Ltd. (Indian Company)
Hutchison Telecom International Ltd. (HTIL) had transferred 100% shares of CGP Investments for Rs.560 billion to Vodafone International Holdings BV
Indirect transfer of rights in HEL, by HTIL to Vodafone International Holdings BV
Vodafone International Holdings BVForeign Company (Situated at Netherlands)Subsidiary of Vodafone Group (Situated at London)
Understanding of Facts of The Case Diagrammatically
Vodafone Group plc(London)
Vodafone International Holding BV
(Netherlands)
HTIL (Hong Kong) 100% Holding in CGP
(Mauritius)
CGP Investments (Mauritius)67% Holding
in Hutchison Essar Ltd.(India)
Hutchison Essar
Ltd.(India )
Vodafone Essar
Ltd.(India)
INCOME TAX ACT OF INDIA, 1961
Section 9(1)(i)
INCOME DEEMED TO BE ACCRUED IN INDIA
Property situated in Bangalore
Foreign ResidentAnother Foreign Resident
Sells it outside India
Consideration in Foreign Currency
Assessing Officers Appeal• Transfer of rights in HEL(India) via CGP
Investment Holding Ltd
• CGP Investment Holdings Ltd. Is merely created to
take benefits of Tax Heavens in Cayman Island,
Mauritius
• As capital gains arise on transfer of shares are exempt
in Mauritius
• But if we consider a concept of substance over Form,
which clearly depicts that substance of a transaction is
to transfer the right in HEL(India)
Bombay High Court Decision It was held that appeal done by CIT is u to the mark
because of the following reasons:
As the purpose of entering into agreement
Is to acquire the controlling interest, which
HTIL (Foreign Co.) had in HEL (Indian CO.)
and as acquired (controlling interest by
Vodafone International)
Income Tax Reference: Income shall be
deemed to be accrued or arise in India
u/s (9)(i)
If today you buy 10% of the shares of a particular
company, let us say Jet Airways, does this mean that you
automatically own 10% of all the JetAirways’ assets?
Does this mean that 10% of the entire fleet of aircraft
now belongs to you? By buying out a company that holds
67% of HEL, it doesn’t mean that Vodafone now owns
67% of the assets of HEL.
Those assets continue to belong to HEL, which is a
separate legal entity based in India, Read the company
law, Dam nit!.
Assessee’s Defend Diagrammatically Explained
Vodafone International Holdings
BV(Netherlands)100% Holding in CGP
CGP Investments(Mauritius)67%Holding in Hutchison
Essar Ltd.(India)
Hutchison Essar Ltd.(Indian Co)
Vodafone’s DefendBy becoming holding co. of CGP, it doesn’t means that (Vodafone) holds
67%of all assets in HEL(Indian Co.)
Supreme Court Decision
Vodafone filed a review petition in Supreme Court in January,2012.
Supreme Court reversed the decision of Bombay High Courtbecause: Assessing officer had no jurisdiction to tax the foreign transaction as
sale of shares in Cayman Island
Transfer of shares in CGP doesn’t amount to transfer of Capital assetsituated in India, as per section 9(1)(I) under the 4th Limb
Bombay High Court Judgement held that transfer of controllinginterest, which is not an identifiable or distinct capital assetindependent of holding of shares and also not covers in Definition ofCapital Assets U/s 2(14).
As Capital Asset is not taxable in India, so there is no question ofDeducting Tax at Source U/s 195(1).
Supreme court’s decision
section;9(1)(i)
transfer of shares
not amount to transfer of
capital asset situated in India
section;9(1)(i)• transfer of
shares• not amount to
transfer of• capital asset
situated in India
section;9(1)(i)• transfer of
shares• not amount to
transfer of• capital asset
situated in India
these are the important three key points on the basis of which
Supreme court has given the decision in Favor of the Vodafone
Transaction and its consequences
previous scenario transaction and consequences current scenario
transfer of shares of CGP,
from HTIL to vodafone.
for consideration of Rs
560 billion
which leads to capital
gain tax on HTIL for Rs
125 billion
the shares of this
company(CGP)are sold in
Mauritius, which is tax
heaven.
after the change of
the holding company
name changed to
vodafone
this depicts that
shares transferred to
gain the rights in
HEL(indian co)
HTIL(Hong Kong)
100% holding in
CGP (Mauritius)
CGF investment
(Mauritius)67% holding
in Hutchison Essar ltd
(India)
Hutchison Essar
ltd (indian Co)
Vodafone International
Holdings BV
(Netherlands)100%
CGP investments
(Mauritius) 67%
holdings in Hutchison
Essar
Vodafone Essar
ltd(Indian co)
(Done by Finance Act 2012)Sections of
Amendments Amendment Done Co relate with case
•Section 9(1)(i):Income deemed to Accrued or Arise in India.
•All income Accrued or Arise, whether directly or indirectly:1. Through transfer of a “Capital
Asset” situated in India. Capital Asset:Any entity( whether registered outside India) deemed to be situated in India.2. IF the share of that entity
derived from the value of asset located in India.
• Explanation on “Capital Asset” provides that,1. Shares of CGP
Investments (Registered outside India),
2. but value of shares are derived from the value of asset located in India.
•Section 2(14):Definition of capital Assets.
Explanation added regarded meaning of the property:Property includes,1. Any rights in an Indian
company2. Any rights in relation to
an Indian co;
Hutchison Hong Kong having rights in Indian co; • Example : Right to appoint directors. Right to use hutch brand etc.
Supreme court judgments
Nullified by the Amendments (by FA 2012)
Section 9(1)(i):• transfer of shares • Not amounts to transfer of • capital asset situated in India
Explanation for capital asset U/s 9(1)(i):1. Any entity( whether registered outside
India) deemed to be situated in India2. If the share of that entity derived from
the value of asset( HEL) located in India.
Section 2(14):• As per Bom. H.C. controlling interest of HTIL in HEL, which is not covered under definition of Capital asset U/s 2(14).
Explanation added regarding meaning of property
Property includes1. Any rights in an Indian Co;2. Any rights in relation to an Indian co;3. Right includes right in management
Controlling interests etc.