Vodafone Tax Case Final

7/17/2019 Vodafone Tax Case Final

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Hutchison -Vodafone Tax Case

Submitted to-Prof Himanshu Barot

Submitted by- Dhruv Shah Jiitender sharmaArchana Amlani



Corporate Structure

Hutchison Essar Ltd (HEL) ndian !om"any

Providin# $elecom Services

Hutchison $elecom nternational Ltd (H$L) %orei#n !om"any (Situated at Hon# &on#)

Holdin# ' shares in !*P nvestments Holdin#s Ltd

!*P nvestments Holdin#s Ltd (!*P)

%orei#n !om"any (Situated at !ayman sland+ ,auritius) Holdin# . share in HEL

Dummy Company only formed to have bene/t ofMauritius Route+ as it0s a Tax Heaven means no taxon any transaction



Diagrammatic View

!*Pnvestments

Holdin#sLtd1

(,auritius)

Hutchison $elecom

nternational Ltd1

(Hon# &on#)

Hutchison

Essar Ltd1(ndian

!om"any)

Holdin# '(() shares in

!*P

Holdin#. sharein HEL



Facts of the Case

Hutchison $elecom nternational Ltd1 (H$L) hadtransferred ' shares of !*P investments for2s1 3 billion to 4odafone nternational Holdin#s

B4

ndirect transfer of ri#hts in HEL+ by H$L to4odafone nternational Holdin#s B4

4odafone nternational Holdin#s B4 %orei#n !om"any (Situated at 5etherlands)

Subsidiary of 4odafone *rou" "lc (Situated at London)



ssessing !"cer#sppea$

$ransfer of ri#hts in HEL(ndia) via!*P nvestment Holdin#s Ltd1

!*P nvestment Holdin#s Ltd1 ismerely created to ta6e bene/ts of

$a7 Heavens in !ayman sland+,auritius

As !a"ital #ains arise on transfer ofshares are e7em"t in ,auritius



Diagrammatic%nderstanding

4odafone*rou""lc(London)

4odafonenternationalHoldin#s B4(5etherlands)

H$L (Hon#

&on#) 'Holdin# in!*P(,auritius)

!*P nvestments(,auritius) .Holdin# in HutchisonEssar Ltd1(ndia)

HutchisonEssar Ltd(ndian !o1)

4odafoneEssar Ltd1(ndian !o1)

$urnedto

(Transferred the contro$$ing interest of HT&'in H(' to Vodafone)



*om+ay High CourtDecision

t 8as held that a""eal done by !$ is u" tothe mar6 because of the follo8in# reasons9

As the "ur"ose of enterin# into a#reement is toac:uire the controllin# interest+ 8hichH$L(%orei#n !o1) had in HEL(ndian !o1) and asac:uired(controllin# interest by 4odafone

nternational

ncome $a7 2eference9 ncome shall be deemedto be accrued or arise in ndia ;<s =(')(i)



ssessee#s DefendDiagrammatica$$y (xp$ained

!*P nvestments(,auritius) .Holdin# in Hutchison

Essar Ltd1(ndia)

HutchisonEssar Ltd1

(ndian !o1)

4odafonenternationalHoldin#s B4(5etherlands)' Holdin# in!*P

Vodafone#s

DefendBy becomin#holdin# co1 of

!*P+ it doesn0tmeans that

(4odafone) holds

. of all assetsin HEL(ndian !o1)



Supreme Court Decision

4odafone /led a revie8 "etition in su"reme !ourt in January+ >'>1

Su"reme !ourt reversed the decision of Bombay Hi#hcourt because9 Assessin# o?cer had no @urisdiction to ta7 the forei#n

transaction+ as sale of shares in !ayman sland

$ransfer of shares in !*P doesn0t amount to transfer of !a"italasset situated in ndia+ as "er section =(')(i) under the th Limb

Bombay Hi#h !ourt Jud#ement held that transfer of controllin#

interest+ 8hich is not an identi/able or distinct ca"ital asset+inde"endent of holdin# of shares and also not covers inDe/nition of !a"ital Assets ;<s >(')

As !a"ital Asset is not ta7able in ndia +so there is no :uestionof Deductin# $a7 at Source ;<s '=3(')



Supreme Court#sDecision

Section9 =(')(i)

• $ransfer ofShares

• 5ot amounts totransfer of

• !a"ital Assetsituated in ndia

Section9 >(')

• As "er Bom1H1!1 controllin#

interest• hich not

covered underde/nition of!a"ital Asset

• ;<s >(')

Section9 '=3(')

• As ca"ital assetnot ta7able in

ndia+• 5o :uestion $a7

Deducted atSource

• ;<s '=3(')

$hese are the im"ortant three "oints on the basis of8hich Su"reme !ourt has #iven the decision in %avorof the 4odafone9



Transaction , its Conseuences

H$L (Hon#&on#) 'Holdin# in!*P(,auritius)


Essar Ltd1(ndia)

HutchisonEssar Ltd

(ndian !o1)

Previous Scenario !urrent Scenario


Essar Ltd1(ndia)

4odafoneEssar Ltd1(ndian !o1)

4odafonenternationalHoldin#s B4(5etherlands)

' Holdin# in!*P

$ransactions C

!onse:uences•Transfer of sharesof C./0 from HT&'to Vodafone1•%or Consideration ofRs1 234 +i$$ion1•

hich leads toCapita$ .ain Tax onHT&' for Rs1 562+i$$ion• $he shares of thiscom"any(!*P) areso$d in Mauritius+8hich is a tax

heaven1•After the change ofho$ding co1•7ame chan#ed toVodafone1• $his de"icts that

shares transferred togain the rights in

R t t



Retrospect vemendmentsSectionsmended mendment Done Co re$ate with Case

•Section =(')(i)9ncomeDeemed toAccrued orArise in ndia

•All incomes accrued or arise+8hether directly or indirect$y9 through transfer of a

capita$ asset situated in&ndia1

•E7"lanation for !a"ital Assets9Any Entity( hether re#isteredFutside ndia) deemed to besituated in ndia+if the share of that Entityderived from the value of asset

located in ndia1

•E7"lanation on ca"italassets "rovidesthat9 shares of C./

&nvestments8Registered!utside &ndia)0

+ut va$ue ofshares are derivedfrom the va$ue ofasset $ocated in

&ndia1

•Section >(')9De/nition of!a"ital Assets

E7"lanation added re#ardin#meanin# of "ro"erty9•"ro"erty includes9•Any ri#hts in an ndian com"any•Any ri#hts in relation to an

ndian !o1

•Hutchison Hong 9onghaving rights in &ndianCo1•(xamp$es: Right toappoint directors0Right to use hutch+rand etc1

(Done by %inance Act >'>)



•Section>(.)9De/nition of $ransfer

E7"lanation Added re#ardin#meanin# of $ransfer9•transfer includes9•Creation of any interest inany asset in any mannerwhether indirect$y orotherwise•by 8ay of anagreement(whetherentered inside or outside&ndia) or other8ise•throu#h Transfer of shares!utside &ndia•hich e;ects the transferof rights in an &ndianCompany

Hutchison Hon# &on#transferred 2i#hts inndian !o1(!*P) to4odafone•Created interest of4odafone in an&ndian Co1 by&ndirect means•+y 8ay of anagreement enteredoutside &ndia•throu#h transfer ofshares in !aymansland+ Mauritius•hich e;ects thetransfer of rights from HT&' toVodafone

Retrospectivemendments

(by %inance Act >'>)



Supreme Court V<s mendments

Supreme Court =udgments 7u$$i>ed +y the mendments 8+yF 6456)

Section9 =(')(i) $ransfer of Shares5ot amounts to transfer of

!a"ital Asset situated inndia

E7"lanation for !a"ital Assets ;<s =(')(i)9Any Entity( hether re#istered

Futside ndia) deemed to besituated in ndia+if the share of that Entity derivedfrom the value of asset(HEL) locatedin ndia1

Section9 >(')

As "er Bom1 H1!1controllin# interest of H$Lin HEL

hich not covered underde/nition of !a"ital Asset

;<s >(')

E7"lanation added re#ardin# meanin#

of "ro"erty9"ro"erty includes9Any ri#hts in an ndian com"anyAny ri#hts in relation to an ndian

!o12i#hts includes 2i#hts in

,ana#ement+ Contro$$ing



Section9 '=3(')As ca"ital asset not

ta7able in ndia+5o :uestion to deduct

Tax at Source;<s '=3(')

Section9 '=3(') for the removal ofdoubts to clarify that obli#ation todeduct ta7 at source shall be deemed

to have al8ays e7tended to all"ersons+ 8hether resident or non-resident has9-a residence or "lace of business orbusiness connection in ndiaG orany other "resence in any manner

8hatsoever in ndia1

Supreme Court V<smendments



*i+$iography

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Vodafone Tax Case Final