Vodafone transfer pricing case within IT dept’s jurisdiction, says ITAT

In a blow to British telecom giant Vodafone Group Plc that has been embroiled in a Rs 8,500-crore transfer-pricing tax dispute with Indian income tax authorities, the Income Tax Appellate Tribunal (ITAT) has backed the tax department, saying that Vodafone is liable to pay tax related to the sale of its call centre business in India to Hutchison and the assignment of Call Options to Vodafone International BV in 2007.

''Assessee's (Vodafone India) appeal is partly allowed. But according to us, this is an international transaction and the assignment of call option took place,'' said an ITAT bench comprising RC Sharma and Vijay Pal Rao.

ITAT bench, however, has not accepted the valuation arrived at by the tax department and said that some part of valuation on both the deals will be sent back to the I-T officer for reassessment.

Last year, the I-T Department had sent a demand notice of Rs 3,700 crore to Vodafone India in this case. Vodafone, however, challenged the demand and moved ITAT.

In December 2013, ITAT stayed the tax demand for six months or till the plea is decided and directed Vodafone India to deposit Rs 200 crore by 15 February in two installments. However, the I-T department filed a rectification plea in the Bombay high court and asked the tribunal to lift the stay order.

Following this, the Bombay High Court asked the tribunal to look into the matter on a day-to-day basis till the final order is passed.

This transfer pricing issue arose after the I-T department issued draft transfer-pricing order in December 2011 and added Rs 8,500 crore to Vodafone's taxable income for the sale of its call centre business in 2007-08. Vodafone argued that the deal was not international transaction and hence the company is not liable to pay tax.

In February 2012, Vodafone India Services Pvt Ltd challenged the jurisdiction of the tax department before the Income Tax Appellate Tribunal (ITAT) and also approached the Bombay High Court.

This is not the only tax dispute the British telecom giant is facing in India. In another dispute, the Bombay High Court ruled in favour of Vodafone in October this year, saying it need not to pay an additional tax of Rs 3,200 crore as demanded by I-T authorities. The I-T Department had said Vodafone India under-priced shares in a rights issue to its parent. The tax demand was for two financial years ending March 2011.  

(Edited by Joby Puthuparampil Johnson)

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