Vodafone International gets a bitter bill

The Income Tax Department has raised a tax demand of Rs11,217.95 crore on Vodafone International Holdings BV for failure to deduct tax before making a payment of $11,076 million to Hutchinson Telecommunications International when it bought the latter's mobile telephony operations in India. The tax is to be paid within 30 days of the receipt of the notice for tax demand. The company meanwhile is contesting the IT department's claim. "As per the Supreme Court directive, the Income Tax department needed to come out with the total tax demand by October 25. However, even though the Mumbai High Court indicated that some parts of the deal were not taxable, the tax authorities have not apportioned the tax amount correspondingly," said a spokesperson for Vodafone International Holdings who did not wish to be named. He however refused to say whether the company would pay the apportioned amount.

He added that the company will wait until Monday for better clarity on the issue, even though it believes that it does not owe any tax to the Indian authorities on the transaction. In its official statement released to the media, the company said it disagreed with the tax calculation released by the Indian Tax Office and it is not liable for any tax on this transaction involving the transfer of a company outside of India. "Further, Vodafone was the acquirer and not the vendor and has made no gain on the transaction. In this “test case”, the tax authority is attempting to interpret Indian law as it has never been interpreted for the past 50 years, and this interpretation also goes against internationally recognized tax norms. Vodafone will continue to take whatever actions are necessary to defend itself in this matter," the statement said.

The tax demand has been raised after the Supreme Court on September 27 asked the Income Tax Assessing Officer to determine and quantify the tax liability of Vodafone within four weeks. The case will be heard by the apex court on October 25.