2. 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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3. 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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4. 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, Mauritius
Holding 67% shares in HEL
Dummy company formed to have benefits of Mauritius route, as it is tax heaven
means no tax on any transactions
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5. 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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6. 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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7. 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 Vodaphone
Section 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 7
8. 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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9. • 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
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10. 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.
11. 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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12. 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 12
13. • 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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14. 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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