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Corporate Tax Planning




                    Notes



                                      Caselet   Vodafone Wins Tax Case in SC; Deal With Hutchison
                                               ‘bona fi de’

                                           odafone on Friday got relief in its income tax case after the Supreme Court ruled

                                           its deal with Hutchison as ‘bona fide’. 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 US $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 IT department had jurisdiction
                                     over the deal.
                                     Through the US $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 IT 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
                                   1.2  Historical Background of Income Tax


                                   The concept of taxing income is a modern innovation and presupposes several things: a money
                                   economy, reasonably accurate accounts, a common understanding of receipts, expenses and
                                   profits, and an orderly society with reliable records. For most of the history of civilization,

                                   these preconditions did not exist, and taxes were based on other factors. Taxes on wealth, social
                                   position, and ownership of the means of production (typically land and slaves) were all common.
                                   Practices such as tithing, or an offering of first fruits, existed from ancient times, and can be

                                   regarded as a precursor of the income tax, but they lacked precision and certainly were not based
                                   on a concept of net increase.
                                   In the year, Emperor Wang Mang of China instituted an unprecedented tax – the income tax –

                                   at the rate of 10 percent of profits, for professionals and skilled labour. (Previously, all Chinese

                                   taxes were either head tax or property tax.) A true income tax was first implemented in Britain by
                                   William Pitt the Younger in his budget of December 1798 to pay for weapons and equipment in


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