tax notes international - Tuck School of Business - Dartmouth College

HIGHLIGHTS
is required to withhold CGT and pay it to the government.
In September 2007 the authorities issued showcause
notices to Vodafone and Vodafone Essar. (The notice
to the latter demanded that the company explain
why it should not be treated as an agent, or representative
assessee, of Vodafone under Indian tax law.)
Vodafone and Vodafone Essar challenged the showcause
notices in writ petitions filed with the Bombay
High Court in October 2007. Vodafone argued that it
had no Indian tax liability on the transaction because
the transfer of shares took place outside of India and
that any tax liability lies with the seller of the shares
— that is, HTIL — and not the buyer.
The company submitted an amended writ petition in
June 2008 challenging the constitutionality of a retroactive
amendment to India’s tax laws in May 2008 that
widened the scope of the term ‘‘assessee in default’’ for
withholding tax purposes, thereby enabling Indian tax
authorities to take action against companies that do
not withhold taxes when making a transaction.
The High Court dismissed Vodafone’s petition on
December 3, 2008. (Vodafone Essar’s petition is still
pending.) Vodafone later filed an appeal with the Indian
Supreme Court.
Appeal Dismissed
At a January 23 hearing on the matter, the Supreme
Court declined to intervene and directed the Income
Tax Department to decide whether it has jurisdiction
to tax the transaction, saying that ‘‘the substantial
question of law raised in the petition is left open.’’ The
Court said that if the authorities decide against
Vodafone on the jurisdictional issue, the company can
challenge the decision in the High Court.
The Supreme Court seemed to suggest that
Vodafone’s petition was filed prematurely. ‘‘It’s only a
show-cause notice,’’ Justice S.B. Sinha reportedly told
Vodafone’s counsel. The Court further questioned why
Vodafone had refused to file with the Bombay High
Court the agreements relating to the transaction. ‘‘Why
were the details not disclosed to the High Court? It has
not even been shown to us,’’ Sinha said.
The government’s counsel, Additional Solicitor General
Mohan Parasaran, noted that Vodafone had finally
submitted the agreements.
‘‘The ball is now in the court of the income tax authority,’’
Parasaran told the media after the hearing. ‘‘It
will look into all the relevant material to arrive at the
conclusion. However, we are now in possession of all
relevant documents of agreement between Vodafone
and HTIL.’’ He added that the tax department will
now issue a revised notice to Vodafone for a hearing
on its tax liability.
In a January 23 statement, Vodafone said, ‘‘Given
the fact that the petition filed by Vodafone involves
important questions of jurisdiction, the Honorable Su-
preme Court of India has asked the tax authorities to
decide, as a preliminary issue only, whether it has jurisdiction
to proceed against Vodafone (and no other issues).’’
The company added, ‘‘Should Vodafone be aggrieved
by the order of the tax authorities’ preliminary
adjudication on jurisdiction, Vodafone has been permitted
to again directly approach the High Court.’’
♦ Kristen A. Parillo is a legal reporter with Tax Notes
International. E-mail: kparillo@tax.org
382 • FEBRUARY 2, 2009 TAX NOTES INTERNATIONAL
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