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