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Hutchison -Vodafone Tax Case
Submitted to-Prof Himanshu Barot
Submitted by- Dhruv Shah Jiitender sharmaArchana Amlani
7/17/2019 Vodafone Tax Case Final
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Corporate Structure
Hutchison Essar Ltd (HEL) ndian !om"any
Providin# $elecom Services
Hutchison $elecom nternational Ltd (H$L) %orei#n !om"any (Situated at Hon# &on#)
Holdin# ' shares in !*P nvestments Holdin#s Ltd
!*P nvestments Holdin#s Ltd (!*P)
%orei#n !om"any (Situated at !ayman sland+ ,auritius) Holdin# . share in HEL
Dummy Company only formed to have bene/t ofMauritius Route+ as it0s a Tax Heaven means no taxon any transaction
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Diagrammatic View
!*Pnvestments
Holdin#sLtd1
(,auritius)
Hutchison $elecom
nternational Ltd1
(Hon# &on#)
Hutchison
Essar Ltd1(ndian
!om"any)
Holdin# '(() shares in
!*P
Holdin#. sharein HEL
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Facts of the Case
Hutchison $elecom nternational Ltd1 (H$L) hadtransferred ' shares of !*P investments for2s1 3 billion to 4odafone nternational Holdin#s
B4
ndirect transfer of ri#hts in HEL+ by H$L to4odafone nternational Holdin#s B4
4odafone nternational Holdin#s B4 %orei#n !om"any (Situated at 5etherlands)
Subsidiary of 4odafone *rou" "lc (Situated at London)
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ssessing !"cer#sppea$
$ransfer of ri#hts in HEL(ndia) via!*P nvestment Holdin#s Ltd1
!*P nvestment Holdin#s Ltd1 ismerely created to ta6e bene/ts of
$a7 Heavens in !ayman sland+,auritius
As !a"ital #ains arise on transfer ofshares are e7em"t in ,auritius
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Diagrammatic%nderstanding
4odafone*rou""lc(London)
4odafonenternationalHoldin#s B4(5etherlands)
H$L (Hon#
&on#) 'Holdin# in!*P(,auritius)
!*P nvestments(,auritius) .Holdin# in HutchisonEssar Ltd1(ndia)
HutchisonEssar Ltd(ndian !o1)
4odafoneEssar Ltd1(ndian !o1)
$urnedto
(Transferred the contro$$ing interest of HT&'in H(' to Vodafone)
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*om+ay High CourtDecision
t 8as held that a""eal done by !$ is u" tothe mar6 because of the follo8in# reasons9
As the "ur"ose of enterin# into a#reement is toac:uire the controllin# interest+ 8hichH$L(%orei#n !o1) had in HEL(ndian !o1) and asac:uired(controllin# interest by 4odafone
nternational
ncome $a7 2eference9 ncome shall be deemedto be accrued or arise in ndia ;<s =(')(i)
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ssessee#s DefendDiagrammatica$$y (xp$ained
!*P nvestments(,auritius) .Holdin# in Hutchison
Essar Ltd1(ndia)
HutchisonEssar Ltd1
(ndian !o1)
4odafonenternationalHoldin#s B4(5etherlands)' Holdin# in!*P
Vodafone#s
DefendBy becomin#holdin# co1 of
!*P+ it doesn0tmeans that
(4odafone) holds
. of all assetsin HEL(ndian !o1)
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Supreme Court Decision
4odafone /led a revie8 "etition in su"reme !ourt in January+ >'>1
Su"reme !ourt reversed the decision of Bombay Hi#hcourt because9 Assessin# o?cer had no @urisdiction to ta7 the forei#n
transaction+ as sale of shares in !ayman sland
$ransfer of shares in !*P doesn0t amount to transfer of !a"italasset situated in ndia+ as "er section =(')(i) under the th Limb
Bombay Hi#h !ourt Jud#ement held that transfer of controllin#
interest+ 8hich is not an identi/able or distinct ca"ital asset+inde"endent of holdin# of shares and also not covers inDe/nition of !a"ital Assets ;<s >(')
As !a"ital Asset is not ta7able in ndia +so there is no :uestionof Deductin# $a7 at Source ;<s '=3(')
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Supreme Court#sDecision
Section9 =(')(i)
• $ransfer ofShares
• 5ot amounts totransfer of
• !a"ital Assetsituated in ndia
Section9 >(')
• As "er Bom1H1!1 controllin#
interest• hich not
covered underde/nition of!a"ital Asset
• ;<s >(')
Section9 '=3(')
• As ca"ital assetnot ta7able in
ndia+• 5o :uestion $a7
Deducted atSource
• ;<s '=3(')
$hese are the im"ortant three "oints on the basis of8hich Su"reme !ourt has #iven the decision in %avorof the 4odafone9
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Transaction , its Conseuences
H$L (Hon#&on#) 'Holdin# in!*P(,auritius)
!*P nvestments(,auritius) .Holdin# in Hutchison
Essar Ltd1(ndia)
HutchisonEssar Ltd
(ndian !o1)
Previous Scenario !urrent Scenario
!*P nvestments(,auritius) .Holdin# in Hutchison
Essar Ltd1(ndia)
4odafoneEssar Ltd1(ndian !o1)
4odafonenternationalHoldin#s B4(5etherlands)
' Holdin# in!*P
$ransactions C
!onse:uences•Transfer of sharesof C./0 from HT&'to Vodafone1•%or Consideration ofRs1 234 +i$$ion1•
hich leads toCapita$ .ain Tax onHT&' for Rs1 562+i$$ion• $he shares of thiscom"any(!*P) areso$d in Mauritius+8hich is a tax
heaven1•After the change ofho$ding co1•7ame chan#ed toVodafone1• $his de"icts that
shares transferred togain the rights in
R t t
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Retrospect vemendmentsSectionsmended mendment Done Co re$ate with Case
•Section =(')(i)9ncomeDeemed toAccrued orArise in ndia
•All incomes accrued or arise+8hether directly or indirect$y9 through transfer of a
capita$ asset situated in&ndia1
•E7"lanation for !a"ital Assets9Any Entity( hether re#isteredFutside ndia) deemed to besituated in ndia+if the share of that Entityderived from the value of asset
located in ndia1
•E7"lanation on ca"italassets "rovidesthat9 shares of C./
&nvestments8Registered!utside &ndia)0
+ut va$ue ofshares are derivedfrom the va$ue ofasset $ocated in
&ndia1
•Section >(')9De/nition of!a"ital Assets
E7"lanation added re#ardin#meanin# of "ro"erty9•"ro"erty includes9•Any ri#hts in an ndian com"any•Any ri#hts in relation to an
ndian !o1
•Hutchison Hong 9onghaving rights in &ndianCo1•(xamp$es: Right toappoint directors0Right to use hutch+rand etc1
(Done by %inance Act >'>)
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•Section>(.)9De/nition of $ransfer
E7"lanation Added re#ardin#meanin# of $ransfer9•transfer includes9•Creation of any interest inany asset in any mannerwhether indirect$y orotherwise•by 8ay of anagreement(whetherentered inside or outside&ndia) or other8ise•throu#h Transfer of shares!utside &ndia•hich e;ects the transferof rights in an &ndianCompany
Hutchison Hon# &on#transferred 2i#hts inndian !o1(!*P) to4odafone•Created interest of4odafone in an&ndian Co1 by&ndirect means•+y 8ay of anagreement enteredoutside &ndia•throu#h transfer ofshares in !aymansland+ Mauritius•hich e;ects thetransfer of rights from HT&' toVodafone
Retrospectivemendments
(by %inance Act >'>)
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Supreme Court V<s mendments
Supreme Court =udgments 7u$$i>ed +y the mendments 8+yF 6456)
Section9 =(')(i) $ransfer of Shares5ot amounts to transfer of
!a"ital Asset situated inndia
E7"lanation for !a"ital Assets ;<s =(')(i)9Any Entity( hether re#istered
Futside ndia) deemed to besituated in ndia+if the share of that Entity derivedfrom the value of asset(HEL) locatedin ndia1
Section9 >(')
As "er Bom1 H1!1controllin# interest of H$Lin HEL
hich not covered underde/nition of !a"ital Asset
;<s >(')
E7"lanation added re#ardin# meanin#
of "ro"erty9"ro"erty includes9Any ri#hts in an ndian com"anyAny ri#hts in relation to an ndian
!o12i#hts includes 2i#hts in
,ana#ement+ Contro$$ing
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Section9 '=3(')As ca"ital asset not
ta7able in ndia+5o :uestion to deduct
Tax at Source;<s '=3(')
Section9 '=3(') for the removal ofdoubts to clarify that obli#ation todeduct ta7 at source shall be deemed
to have al8ays e7tended to all"ersons+ 8hether resident or non-resident has9-a residence or "lace of business orbusiness connection in ndiaG orany other "resence in any manner
8hatsoever in ndia1
Supreme Court V<smendments
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*i+$iography
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