Date post: | 09-Apr-2017 |
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SLIDES BY
Shravan Kumar
The Case Is In Between
Vs
The tax demand by the Indian Revenue Department in this case was around Rs.11,000 crore plus interest
In connection with taxability of the $ 11.2 billion Hutch-Vodafone deal
Some Basic term Before going with case• Merger:-A merger involves the mutual decision of two companies to combine and become one entity. Eg. X+Y =XY• Acquisition:-Acquisition is purchase of one company by another in which no new company is formed. Eg. X + Y = X• Amalgamation:-The combination of one or more companies into a new entity Eg. X+Y=Z
• Joint Venture:- is a business agreement in which the parties agree to develop, a new
entity and new assets by contributing equity• Conglomerate:- a conglomerate is a
multi-industry company. Conglomerates are large and multinational.
• Holding Company:- is a company that owns other companies' outstanding stock. The term usually refers to a company that does not produce goods or services itself; rather, its purpose is to own shares of other companies to form a corporate group.
• Subsidiary Company:-subsidiary company or is a company that is owned or controlled by another company.• Parent Company:-A parent company is a company that owns enough voting
stock in another firm to control management and operation by doing and influencing or electing its board of directors.• Capital Gain:-An increase in the value of a capital asset (investment or real
estate) that gives it a higher worth than the purchase price. The gain is not realized until the asset is sold.• Tax Evasion:-Tax evasion is using illegal means to avoid paying taxes
The Company Mentioned In CaseHTIL (Hutchison Telecommunications International Limited)
Foreign Company Situated in Hong Kong Holding 100% Shares in CGP Investments Holdings Ltd
CGP (CGP Investments Holdings Limited) Situated in Cayman Island (a tax haven country) Holding 67% Shares in HEL
HEL (Hutch Essar Limited) Situated in India Formed by Merger of HTIL and Essar Group
VIH (Vodafone International Holdings) Situated at Netherland Subsidiary of Vodafone Group Plc In London
Hutchison StructureCGP
Investments Holdings Ltd.(Mauritius)
Hutchison Telecom International Ltd.
(Hong Kong)
Hutchison Essar Ltd. (Indian Company)
Holding 100% shares in
CGP
Holding 67% share in HEL
Some Interesting Facts About Case• CGP International Holding was a Dummy Company.• Which was based in Cayman Island, Mauritius (Tax Heaven).• Vodafone was looking to acquire HEL.• To Save Tax on Deal Vodafone opted to Acquire CGP International Holding.• But CGP International was Holding Company of HEL.• Vodafone Acquired CGP International For Rupees 560 Billion.• Now VIH is neither liable to pay tax in India because they have made no transaction in India Norin Mauritius because it’s a tax heaven.
Vodafone acquires Hutch in India with Nil Tax Liability
NO TAX
Deal Between Vodafone- Hutchison
Vodafone Group plc(London)
Vodafone International Holdings BV(Netherlands)
HTIL (Hong Kong) 100% Holding in CGP(Mauritius)
CGP Investments (Mauritius) 67% Holding in Hutchison Essar Ltd.(India)
Hutchison Essar Ltd (Indian Co.)
Transfer 100% Shares of CGP
For Consideration of Rs. 560bn.
Vodafone Essar Ltd. (Indian Co.) Turned
to
Indian Revenue Authorities Allegations
• CGP was created to take benefits of Tax Exemption.• As Capital gains arise on transfer of shares are exempt in Mauritius.•A concept of Substance over Form, which clearly
depicts that substance of a transaction is to transfer the rights in HEL(India).• The Indian Revenue Authorities alleged that VIH, had failed to
Deduct Tax on the payment of consideration made to HTIL.• Hence, sought to assess tax in its hand as a taxpayer in default and it
issued a notice to Vodafone.
Vodafone Moved To High Court• Instead of responding to the Notice of Indian Revenue
Authorities, VIH filed a written petition to the Honorable Bombay High Court challenging jurisdiction of Income Tax Department.• This written petition was dismissed by the High Court.• VIH appealed to the Supreme Court which sent the matter to
Revenue authorities to decide whether the revenue had the jurisdiction over the matter.• The revenue authorities decided that it had the jurisdiction over
the matter and then matter went to High Court which was also decided in favor of Revenue.
January 2009
December 2008
Decision By High Court In Favor Of Revenue
Department• CGP was a mere holding company and was not engaged into any
business in Cayman Islands, thus, the situs of shares existed where the “underlying assets” i.e. in India.• After going through the terms of Share Purchase Agreement and
other documents, it can be interpreted that the intention of the parties was ultimately to transfer the controlling interest in HEL which was situated in India.• The Tax Authorities passed an order under section 201 holding
that they had jurisdiction to proceed against Vodafone for failure to deduct tax.
Vodafone’s Defend Diagrammatically
CGP Investments (Mauritius) 67% Holding in Hutchison Essar Ltd.(India)
Hutchison Essar Ltd. (Indian Co.)
Vodafone International Holdings BV(Netherlands) 100% Holding in CGP
Vodafone’s Defend
By becoming holding co. of CGP, it doesn’t
means that I(Vodafone) holds 67%
of all assets in HEL(Indian Co.)
Vodafone’s SLP in Supreme Court
• Vodafone filed a written petition to the Bombay High Court challenging the order of Income Tax Authorities.• The Bombay High Court dismissed Vodafone’s written petition
against the order of the Tax Authorities.• Vodafone filed Special Leave Petition (SLP) before the Honorable
Supreme Court of India. The Supreme Court admitted the SLP and directed Vodafone to deposit Rs. 2,500 crore and provide a bank guarantee for the balance Rs. 8,500 crore.
September 2010
November 2010
The Supreme Court’s Decision• The Indian Revenue Authorities had no jurisdiction to tax the
foreign transactions, as sale of shares was in Cayman Island.• Transfer of shares in CGP doesn’t amount to transfer of Capital
Asset situated in India, as per Section 9(1)(i).• The transfer of “Rights and Entitlements” (Controlling Interest) is
not covered in Definition of “Capital Assets” under section 2(14).• As Capital Asset is not taxable in India, so there is no question of
Deducting Tax at Source under section 195(1).
The Supreme Court reversed the decision of Bombay High Court.
January 2012
The Verdict Given By Supreme Court
Section: 9(1)(i)• Transfer of Shares• Not amounts to
transfer of• Capital Asset
situated in India
Section: 2(14)• As per Bom. H.C.
controlling interest• Which not covered
under definition of Capital Asset
• U/s 2(14)
Section: 195(1)• As capital asset not
taxable in India,• No question Tax
Deducted at Source• U/s 195(1)
These are the important three points on the basis of which Supreme Court has given the decision in Favor of the Vodafone:
The Retrospective Amendments in tax law
done by Finance act 2012Applicable w.e.f April 1, 1961
The Retrospective Amendments in tax law
done by Finance act 2012