I-T notice: Vodafone moves Supreme Court

New Delhi: Telecom giant Vodafone on Tuesday said it has filed a petition in the Supreme Court seeking protection against penal action by the Income Tax authorities in the $2 billion tax case relating to acquisition of Hutchison’s stake in Indian joint venture Hutchison-Essar.

“Vodafone International Holdings BV has filed a petition in the Supreme Court seeking to protect itself against a notice recently received from the Indian tax authorities initiating penalty proceedings against it”, the company said in a statement.

The petition follows an Income Tax notice to the company few weeks back saying penal action would be initiated against Vodafone in the tax case.

The Income Tax department had raised a demand of about $ 2 billion on Vodafone as it failed to deduct (withhold) tax at the time of purchase of majority stake of Hutchison in Hutchison-Essar in 2007 for over $11 billion.

The tax case has been pending in the Supreme Court and will come up for hearing on July 19.

With regard to the petition filed by Vodafone to pre-empt penal action by the IT department, the company said, “It is difficult to understand the rationale behind the tax authorities seeking to impose penalties on a matter which the tax authorities have, themselves, described as a test case.”

Seeking penalties on a ‘test case’ involving a major infrastructure investor, it said, “Highlights the unpredictable nature of India’s taxation policy. This move is only likely to raise further concerns amongst potential investors into India.”

All the advice received by Vodafone during and since the acquisition, the company said, “is that there is no tax or therefore penalty that arises and Vodafone will take all appropriate steps to defend itself and its investors against this latest unwarranted action from the tax authority.”

The established tax laws are “being reinterpreted in a completely new way” and there are no previous examples of such taxes being imposed in India on an overseas share transfer such as this, it added.