Vodafone dials HC in Rs 8,500 crore tax case

UK- based telecom giant Vodafone has moved the Bombay High Court challenging the jurisdiction of transfer pricing orders from the income tax department that propose to add approximately Rs 8,500 crore rupees to its Indian income.

“The plea relies on the recent Supreme Court verdict which ruled in favour of Vodafone in the Rs11,000 crore rupee tax case. It argues that the same sets of transactions were under review in both the cases and is seeking similar relief from the High Court. The IT dept has sought time to file a response and the case will now be heard on March 27th,” said two individuals privy to the developments.

On January 20th, the apex court held that the income tax department had no jurisdiction to tax the $ 11 billion dollar Hutch-Vodafone deal struck in 2007.

Vodafone confirmed the development and said, “As stated previously, Vodafone disagrees with the transfer pricing issues contained within the draft Assessment Order it received from the Tax Authority in December 2011. Given the recent Vodafone-Hutchison Supreme Court judgment contains several observations which appear to clearly favour Vodafone’s position in this Transfer Pricing matter, on Tuesday the Company filed a Writ Petition challenging these jurisdictional issues. These issues should be addressed by the High Court before the Assessment Order is finalized.”

Transfer price refers to the amount utilized for accounting purposes for transfer of goods or services between two entities of the same group. It is used for purposes of revenue allocation between different divisions of the group concerned. India has a high incidence of disputes relating to transfer pricing because it is often difficult to arrive at a price that is agreeable to both the IT department and the companies involved.

In a related proceeding, Vodafone has also filed an appeal with the dispute resolution panel or DRP against the draft assessment order on transfer pricing received from tax authorities in December 2011. DRP proceedings have a timeline of nine months. Under the DRP route, the panel (comprising of three commissioners of income tax/directors of income tax) after evaluating the evidences and submissions of both parties would issue directions to the IT dept, either to confirm or reduce or enhance the variation proposed in the draft assessment order. Vodafone reportedly tops a list of several Indian corporates and MNC’s that have received similar transfer pricing orders from the income tax department.

The Bombay High Court had earlier dismissed metals giant Hindalco’s writ petition that challenged an IT transfer pricing order that sought to add nearly Rs 1155 crores to the company’s taxable income. The High Court observed that Hindalco could exercise alternate remedies or forums to go for an appeal, including the dispute resolution panel.

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