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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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