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Unit 1: Income Tax: Basic Framework

1.2.2 Tax Treatment of Income Notes

For the purposes of treatment of income for tax purposes it can be divided into three categories:
1. Taxable Income: These incomes from part of total income and are fully taxable. These are
salaries, rent, business profits, professional gains, capital gain, and interest dividend and
so on.
2. Exempted Income: These incomes do not from part of total income either fully or partially.
Hence, no tax is payable on such incomes.
3. Rebateable (Tax Free Incomes): These incomes form part of total income and are fully
taxable. Tax is calculated on total income out of which a Rebate of Tax at average rate is
allowed.

Caselet Vodafone Wins Tax Case in SC; Deal with Hutchison
‘Bonafide’

odafone on Friday got relief in its income tax case after the Supreme Court ruled
its deal with Hutchison as ‘bonafide’. The Supreme Court on Friday in a majority
Vverdict has upheld Vodafone International Holdings BV’s contention that the Income
Tax department did not have jurisdiction over a $11.2 billion deal in May 2007 in which the
British group acquired Hutchison Telecommunications International as part of a complex
transaction to buy the latter’s majority stake in its Indian telecom business. The Indian
unit, called Hutchison Essar then, is today named Vodafone Essar.
The verdict has asked the tax department to return the ` 2,500 crore that Vodafone had
submitted as interim tax liability.
The verdict sets aside the uncertainty over the tax claim on Vodafone, as also companies
involved in such transactions, but in future similar deals may come under the ambit of the
proposed Direct Tax Code (DTC), which is being currently debated in Parliament. It taxes
similar deals subject to certain conditions.
The telecom giant had moved the apex court challenging the Bombay High Court
judgement of September 8, 2010 which had held that Indian I-T department had jurisdiction
over the deal.
Through the $11.2 billion deal in May 2007, Vodafone acquired 67 per cent stake in the
Hutchison-Essar Ltd (HEL) from Hong Kong-based Hutchison Group through companies
based in Netherlands and Cayman Island.
The I-T Department maintained that since capital gains were made in India through the
deal, Vodafone was liable to pay the tax and issued a showcause notice to it, asking as to
why it should not be treated as a representative assessee of the Vodafone International
Holding.
Vodafone, however, challenged the show cause notice before the Bombay High Court
saying it was share transfer carried outside India.
The appeal was rejected by the high court in December 2008 which was again challenged
by Vodafone before the apex court.
Source: http://businesstoday.intoday.in/story/vodafone-wins-tax-case-in-supreme-court/1/21814.html

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