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Lalitha Latha.N.C 15061Leonard Bruno.L 15063Leslie Leo 15064Lis manavalan 15065

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Agenda• Background of vodaphone• corporate structure• Facts of the case• Reasons for Hutchison’s exit• Arguments of IT department and vodaphone• Timelines of the case• Supreme court decision • Retrospective law• Retrospective amendments in tax laws• Present government

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Background of vodaphone( voice data fone)

• Vodaphone group plc is a British multinational telecommunication company with headquarters in London• Vodaphone owns and operates network in 26 countries and has partner network in

over 50 additional countries

Revenue  £40.97 billion (2016)Operating income  £1.37 billion (2016)

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Corporate structure• Hutchison Essar Ltd(HEL)Indian company, providing telecom service• Hutchison telecom international Ltd(HTIL)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, MauritiusHolding 67% shares in HELDummy company formed to have benefits of Mauritius route, as it is tax heaven

means no tax on any transactions

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Facts of the case

• Hutchison telecom international Ltd(HTIL) had transferred 100% shares of CGP

investments for Rs.560 billion to vodaphone international holdings BV

• Indirect transfer of rights in HEL, by HTIL to vodaphone international holdings

BV

• Vodaphone international holdings BV

Foreign company situated in Netherlands

Subsidiary of vodaphone group plc ( situated in London)

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Reasons for Hutchison’s exit

• Urban market in country had become saturated

• Future expansions have to be only through rural areas, which would be leading to

falling average revenue per user(ARPU) and consequently lower returns on investment

• HTIL also wanted to use the money earned through this deal to fund its business in

Europe

• The sale of its assets in India will enable Hutchison telecom to become one of Asia’s

best capitalized companies

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Arguments of IT department

• The subject matter of the transaction between HTIL and vodaphone was a transfer on 67% in HEL• The transactions constitutes a transfer of composite rights of HTIL in HEL and not merely the

transfer of single share in CGP. The acquisition of shares is only one means to achieve the object• Several vital rights were acquired by vodaphone ( including license to conduct telecom business

in India, management rights, loans, option agreements, branch license etc.) and that such rights as direct nexus in India• The transaction was chargeable in India and that vodaphone was therefore required to withhold

appropriate taxes on payments made to Hutch

• Arguments of VodaphoneSection 9 seeks to tax capital gains only if they arise from transfer of capital assets situated in

India. the impugned transaction involved the transfer of shares of a foreign company outside India and was hence not taxable in India

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Timelines of the case • 2007 February: Vodafone buys 67% in Hutchison Essar for $11.5 billion. The company is

renamed Vodafone Essar• September: The income-tax (IT) department slaps Vodafone with a tax demand of Rs 11,000

crore as the asset is in India• October: Vodafone goes to Bombay High Court (HC) saying "it was a share transfer carried

outside India".• 2008 February: Government amends Section 201 of IT Act, makes withholding tax mandatory

with retrospective effect• December: HC dismisses Vodafone's petition, says IT department has right to investigate the

case; Vodafone appeals to Supreme Court(SC)• 2009 January: SC dismisses Vodafone's appeal; leaves the decision on jurisdiction of the deal to

the IT department. Also refers the case back to Bombay HC• 2010 January : Vodafone replies to IT notice saying IT department does not have jurisdiction

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• June: Vodafone files petition in Bombay HC challenging IT department's order it has jurisdiction• August: High Court begins hearing case• September: Bombay High Court says Vodafone must pay capital gains tax on the deal. Vodafone

appeals to SC• September : SC asks IT department to quantify tax liability• November: SC asks Vodafone to deposit Rs 2500 crore and provide bank guarantees of Rs 8500

crore , pending final verdict• 2011• March: Vodafone receives tax notice from IT department asking it to explain why it should not

be liable for penalties of up to 100% of the tax found due• April: SC stays IT department from enforcing any liabilities till outcome of final hearing• August: Supreme Court begins hearing the case• 2012 January 20: Vodafone wins tax case in SC

Supreme court decision• Accordingly, the Supreme Court concluded that the transfer of the share in CGP did

not result in the transfer of a capital asset situated in India, and gains from such

transfer could not be subject to Indian tax

• The Supreme Court held that gains arising from the said transaction were not liable

to tax in India, and that therefore there was no obligation on Vodafone to deduct tax

at source.

• The Supreme Court has directed the tax authorities to return INR 2500 crore which

was earlier deposited by Vodafone, along with 4 percent interest and return the bank

guarantee.

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Retrospective laws

• Retrospective laws are ones that seek to change the law relating to the past – for example a retrospective law may make people criminally responsible for doing something that was not actually against the law when they did it.

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Retrospective amendments in tax laws

• Certain retrospective amendments were made in tax laws by finance act 2012 to nullify the

judgment of supreme court.

• Section 9(1)(i) applicable w.e.f April 1,1961

All income accrued or arise, whether directly or indirectly through transfer of a “capital asset”

situated in India

• Section 2(14) applicable w.e.f April 1, 1961

Property includes and shall be deemed to have always included :

Any right in Indian company

Any right in relation to an Indian company

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• Section 2(47) applicable w.e.f April 1, 1961

Transfer includes and shall be deemed to have always included :

Disposing of or parting with an asset or any interest therein

Creating any interest in any asset in any manner whether indirectly or otherwise

By way of an agreement ( whether entered into in India or outside India ) or

otherwise

Notwithstanding that such transfer of rights have been characterized as being

effected or dependent upon or flowing from the transfer of shares of a company

registered or incorporated outside India

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Present government• Finance minister had to assure that Vodafone type retrospective amendment would

not be repeated in future

• The government is keen to settle the issue quickly as it could undermine attempts to attract

investment to speed up economic growth from the 7.6% forecast for this year

•  In a move to win over the confidence of international investors, the government offered one-

time settlement of cases emanating from retrospective amendment of tax laws, by asking

companies to pay the basic tax demand and get a waiver on interest and penalty

• In Vodafone’s case, the basic tax duties are about Rs 8,000 crore, while interests and penalties

could mount to over Rs 14,000 crore

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Sources

• http://articles.economictimes.indiatimes.com/2012-01-20/news/30647252_1_vodafone-essar-vodafone-group-plc-tax-notice• http://

www.livemint.com/Companies/APDDGS0zZjoOOsaLYd1SfK/Vodafone-told-to-secure-potential-liability-by-SC.html• http://www.slideshare.net/urohit/vodafone-tax-case-30786883• http://

timesofindia.indiatimes.com/business/india-business/Vodafone-wins-Rs-3200cr-tax-case/articleshow/44779467.cms

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